The China White Paper 1949

SP 63 / Two volumes, $7.50 a set

CHINA

WHITE

PAPER

August 1949

VOLUME I

Originally Issued as

UNITED STATES RELATIONS WITH CHINA
With Special Reference to the Period 1944-1949
Department of State Publication 3573
Far Eastern Series 30

Reissued with the Original Letter of Transmittal
to President Truman from Secretary of State Dean Acheson

WITH A NEW INTRODUCTION BY LYMAN P. VAN SLYKE

STANFORD UNIVERSITY PRESS

062121

Library

College of Boca Raton
Boca Raton, FL 33431

THE CHINA WHITE PAPER

E

183.8

.C5

THE CHINA
WHITE PAPER

August 1949

Originally Issued as

UNITED STATES RELATIONS WITH CHINA

With Special Reference to the Period 1944-1949

Department of State Publication 857 3
Far Eastern Series 30

Reissued with the Original Letter of Transmittal to President Truman
from Secretary of State Dean Acheson
and with a New Introduction by
LYMAN P. VAN SLYKE

STANFORD UNIVERSITY PRESS
Stanford, California

The China White Paper was originally issued by the United States Department of State
in August 1949 under the title United States Relations with China , With Special Reference
to the Period 19 44-19 49. The present edition is identical to the original except for the
unnumbered front matter, ending with the Introduction by Lyman P. Van Slyke; the
correction of some sixty typographical errors and minor discrepancies of orthography;
and the addition of an Index. The Index was prepared for the present edition by
Willard A. Heaps.

Stanford University Press
Stanford, California

Introduction and Index © 1967 by the Board of Trustees
of the Leland Stanford Junior University
Printed in the United States of America
Cloth ISBN 0-8047-0607-7
Paper ISBN 0-8047-0608-5
Last figure below indicates year of this printing:

79 78 77 76 75 74 73 72 71 70

Introduction

by Lyman P. Van Slyke

Until the Japanese attack on Pearl Harbor, American attitudes toward
China were shaped by the missionary and the trader, who operated
under the system of the unequal treaties forced on China by the Western
powers. The United States benefited fully from such treaties— and
even contributed to their final form by adding the concept of extra-
territoriality — but because Americans had not taken the initiative in
setting up and enforcing the treaty system, the American people felt
little responsibility for its inequities. In time, Americans came to feel
that their behavior in China contrasted favorably with the selfishness
of the European powers and Japan, and this feeling was greatly height-
ened by the idealism and moral fervor of the American missionary
effort. The trader and the businessman— advocating free trade and
opposing exclusive spheres of influence— represented America’s eco-
nomic stake in China. But this was never more than a very small
part of American overseas investment.

In the end, therefore, there grew up a split between our attitudes and
our actions. Having no great political or economic stake in China, we
were inclined to frame our China policy in moral terms; but for the
same reason, we were unwilling to back our policies, however just,
against the conflicting policies of nations with higher stakes in the game.
There was no conscious duplicity on our part. Our China policy re-
flected our feelings as a nation; if we were reluctant to back these feel-
ings, it was because our vital interests were not really involved in China.

All this was symbolized by the Open Door policy. Originally an
affirmation that every nation should have equality of economic oppor-
tunity in China, the Open Door policy was soon redefined as a call for
the territorial and administrative integrity of China; but it never led
to effective action on our part to ensure China’s independence. Never-
theless, thanks to our philanthropic and educational work in China,
our willingness to forgo our share of the Boxer indemnity, and our
government’s repeated expressions of goodwill, we came to think of the
United States as China’s close friend and benefactor.

INTRODUCTION

Thus, on the eve of Pearl Harbor, although all our sympathies lay
with China, we characteristically continued normal relations with Japan.
The Japanese attack forced a change in our policies, but it was still
impossible to give China much military help. In the first months of
the war, there was no materiel to spare; and later it was all but impos-
sible to get supplies to China’s isolated armies. Most important,
Europe took clear priority over Asia in the Allies’ master plan for the
war; and in Asia, by 1943 the island-hopping strategy obviously had
replaced the strategy of attacking Japan through China. In military
terms, China was a sideshow.

To compensate Chiang Kai-shek politically and to keep China ac-
tively in the war, Roosevelt pushed China’s recognition as one of the
Big Four over British objections, and dramatically terminated the
unequal treaties in 1943. In these moves, Roosevelt had the enthu-
siastic support of the American public, which felt that America had
done too little for China in the past and which saw the Generalissimo
and Madame Chiang as heroic allies against the Japanese aggressor.
But once again, United States policy, in its generosity and optimism,
did not necessarily reflect the realities of the situation.

While we were committing ourselves to Chinese greatness under
Chiang, the Nationalists were becoming increasingly ineffective.
Shocking stories of corruption and dictatorial high-handedness came
out of Chungking. Friction between the Nationalists and the Com-
munists threatened to erupt into civil war. Chiang also hinted that
unless American aid were forthcoming on Chinese terms, China might
be forced to make a separate peace, thereby releasing large Japanese
forces. The almost unopposed Japanese offensive into the interior of
south China in 1944 seemed to confirm all these fears.

By October 1944, when General Joseph W. Stilwell, who favored a
tough quid pro quo policy toward Chiang, was recalled at the Generalis-
simo’s insistence, General Patrick J. Hurley had already arrived in
China. He expressed clearly the goals of American policy: to keep
China in the war, to support Chiang and the National Government,
to persuade Chiang to undertake certain reforms, and to promote the
unity and democracy to which all Chinese parties proclaimed their
dedication. It is clear now that these goals were irreconcilable, for if
there was no possibility of withdrawing our support from Chiang, there
was no way of getting him to make changes he did not choose to make.
America’s role as mediator was compromised for the same reason. But
this was far from clear at the time, except to those who knew the situa-
tion in China most intimately. Americans in 1944-45 were in substan-
tial agreement that China policy, broadly speaking, was being ade-

INTRODUCTION

quately handled. This consensus lasted until well after the war; even
Hurley’s parting broadside (pp. 581-84) failed to shake it.

Partisanship on the China issue did not really begin until after the
Congressional elections of November 1946, which put Republican
majorities into both the Senate and the House and marked the low
point of the Truman Administration’s influence. In January 1947,
General George C. Marshall, who had succeeded General Hurley as the
President’s Special Representative in China, reported the failure of his
efforts to arrange a peaceful settlement, and returned home to become
Secretary of State. The Republicans— anticipating the Presidency in
1948— used their majorities in Congress to exert an increasingly power-
ful influence on foreign policy. A group of Congressmen (led by
William Knowland and Styles Bridges in the Senate, and by Walter
Judd in the House) called for increased aid to the Nationalists in their
conflict against the Chinese Communists. Nothing could alter their
belief in the greatness of Chiang Kai-shek, or their conviction that the
Chinese Communists were Russian puppets.

During 1947 and 1948, the Republicans used the threat of torpedoing
the Marshall Plan for the recovery of Europe as a way of getting sup-
port for China. Among other things, they argued that if a strategy of
massive foreign aid was appropriate to Europe (i.e., Greece), it should
also be applied in Asia (i.e., China). So long as this balance of power
existed on Capitol Hill, the Administration felt it necessary to make
cautious concessions on the China front in order to move ahead with
the rest of its foreign program.

Marshall, who was convinced that only all-out military intervention
could save Chiang, favored a policy of quiet disengagement from China.
Not only were America’s resources insufficient for military intervention
in his opinion, but the American people would not sanction such a
course. And yet disengagement had almost as high a price, thanks not
only to the embattled political situation in Washington, but to the
accumulated weight of past American relations with China. How
could we simply abandon a traditional friend, an ally who had suffered
so long, a member of the Big Four by virtue of our own insistence?
Marshall wavered, then moved from quiet disengagement back to
limited commitment. The principal concessions of the Administra-
tion were the resumption of arms shipments to the Chinese Nationalists
in early 1947, the dispatch of the Wedemeyer mission later that year,
and the China Aid Act of April 1948.

This unstable situation lasted until the unexpected Democratic vic-
tory in the 1948 election. With both houses of Congress once more in
Democratic hands, the Administration no longer had to buy Repub-

INTRODUCTION

lican support for its legislative program at the cost of concessions on
China. Instead of reducing partisanship on the China issue, however,
the Democratic victory only heightened it. Earlier the Republicans
had been overconfident and a little complacent; now, in the bitterness
of defeat, they sought to draw blood wherever they could.

As the plight of the Nationalists worsened, Republican attacks on
Administration policy became more frequent and more heated. By
now, too, a new note had been added— the question of Communist in-
fluence on China policy in the State Department. In 1947, the Truman
Administration had begun a program of security investigations that it
hoped to keep confidential, but a number of sensational cases were re-
ceiving publicity all during 1948. Eleven Communist leaders were
trading blows with Judge Harold R. Medina in a Smith Act trial in
New York City; Judith Coplon of the Justice Department, allegedly a
Communist, was under indictment for conspiracy; Klaus Fuchs had
confessed to atomic espionage on behalf of the Soviet Union; and the ex-
Communist Whittaker Chambers was describing his conspiratorial rela-
tions with Alger Hiss, a high official of the State Department. There had
been sporadic charges made earlier against certain career China spe-
cialists, beginning with Hurley’s letter of resignation in 1945, but by
1949 the atmosphere had grown feverish. This was the immediate
background for Senator Joseph McCarthy’s notorious effort, beginning
in early 1950, to discredit the State Department as a whole.

The White Paper was thus published in the midst of acrimonious
controversy over United States China policy, the containment of Com-
munism abroad, and the fear of subversion at home.

The idea of a White Paper may have first been suggested by middle-
level officers in the State Department’s Office of Far Eastern Affairs.
Secretary of Defense James V. Forrestal recorded in his diary that at a
conference held on November 26, 1948, “Marshall read a paper from
some office people in the State Department, who advocated going to the
American public now to explain the inadequacies of the Chiang Kai-shek
government.” Marshall went on to say that he had decided, with the
President’s approval, to reject this suggestion because he felt it would
administer the coup de grace to Chiang. 1 The idea persisted, however,
and the following spring, after Dean Acheson’s appointment as Sec-
retary of State, Acheson obtained Truman’s approval to go ahead with
the preparation of a White Paper on China.

When Acheson said later that the White Paper had been published
in the belief that “the disasters had already overtaken the Nationalist

1 Walter Millis, ed., The Forrestal Diaries (New York: Viking, 1951), p. 534.

INTRODUCTION

government,” 2 he meant that the White Paper could not have hastened
a collapse that was already complete. By implication, the decision to
publish the White Paper reflected the feeling that since we could no
longer effectively influence events in China, we should not be entangled
in them. This was the agonizing decision Marshall had shrunk from
making a year earlier, when there may still have been grounds for hop-
ing that a Nationalist collapse could be averted. By the spring of 1949,
such grounds existed no longer. The Nationalist cause was in ruins: in
January, Chiang Kai-shek quit the Presidency and Peiping fell; in
April, Communist troops crossed the Yangtze without opposition, and
peacefully occupied Shanghai a few days later.

The directive from President Truman and Secretary Acheson to the
compilers of the White Paper called for a completely objective record.
Yet the Administration plainly hoped this record would show that we
had done as much as we could, that our course had been basically cor-
rect, and that the impending fall of China to the Communists was in no
way attributable to American policy. The White Paper was issued to
counter largely Republican criticism. In Truman’s words, “The role
of this government in its relations with China has been subject to con-
siderable misrepresentation, distortion, and misunderstanding. Some
of these attitudes arose because this government was reluctant to reveal
certain facts . . .” 3 Truman believed his two goals— objectivity and
justification— were compatible. His critics, as it turned out, found the
White Paper neither objective nor convincing.

In overall charge of the project was W. Walton Butterworth, who was
concurrently Director of the Office of Far Eastern Affairs and Acting
Assistant Secretary of State for Far Eastern Affairs. Because of the
weight of his duties, Butterworth delegated the actual preparation of the
White Paper to his division officers, several of whom he detailed to full-
time work on the project. Beginning about March 1949, the White
Paper became a round-the-clock effort for those involved. Most of the
work of writing and editing was done by five or six officers with recent
and extensive experience in China. 4 Only materials in the files of the
Department of State were used. To have searched for and sought the
release of documents in other agencies— especially the former War
Department— would have greatly delayed publication of the White
Paper, and Acheson was anxious that it be issued as soon as possible.

2 U.S. Senate, Committee on Armed Services and Committee on Foreign Relations,
Hearings on the Military Situation in the Far East, 82d Cong., 1st Sess. (1951), p. 1770.

3 Department of State, Bulletin , Aug. 15, 1949, p. 237.

4 Many others helped in the preparation of the document, particularly in the Divi-
sion of Historical Policy Research under G. Bernard Noble, but unless one counts
archivists, secretaries, and clerks, the total number was far less than the eighty persons
alleged by the journalist Arthur Krock.

INTRODUCTION

This complete reliance on State Department files later led to charges
that the White Paper was inadequate in its coverage.

In late June 1949, when the White Paper was nearly finished, Acheson
asked Ambassador-at-Large Philip C. Jessup to read the document and
suggest changes in it. Jessup, a professor of international law with a
distinguished career at Columbia, was at that time the United States
representative to the United Nations General Assembly and had been
working on negotiations concerning the Berlin blockade. Later, during
McCarthy’s attacks on Jessup, the erroneous impression was given that
the White Paper was largely his creation. Actually, the changes he
suggested were few. Jessup did have an active hand, however, in
preparing Acheson’s Letter of Transmittal, the most controversial
document in the volume. The letter subsequently went through
many hands and many drafts before Acheson finally reworked it to
suit himself.

As one might expect, the White Paper is composed primarily of docu-
ments and excerpts from documents, nearly all of which were highly
classified before the White Paper was published. This preponderance
is greater than appears at first sight, because even the narrative section
contains long quotations from documents. Although the period of spe-
cial reference is from 1944 to 1949, nearly one-fifth of the volume deals
with the century from 1844 to 1943. There is very heavy emphasis —
about 40 per cent of the total — on 1947 and 1948 (there are only a very
few documents dating from early 1949). The volume’s coverage is
least extensive for 1944 and 1945. 5 Originally scheduled for release at
the end of July, the White Paper was held up for about a week by print-
ing difficulties. Because of the rush to publish, no index was prepared.
The White Paper was released to the public on August 5, 1949, at a
price of three dollars.

In issuing the White Paper, the Administration was proceeding in the
belief— or the hope— that the record would speak for itself. Though its
principal significance lay in domestic politics, one could expect the White
Paper to have a very pronounced impact on both parties in China. Let
us consider this impact briefly before turning to its reception in the
United States.

The Chinese Communists made the White Paper the center of their
first mass anti-American campaign. There had been much Communist-
inspired criticism of the United States in the past, but there remained in

5 Extensive and fascinating new documentation covering 1944 is now available in
Department of State, Foreign Relations of the United States, 1944 > Vol. VI: China
(Washington, D.C., 1967), 1,206 pp. Similar volumes covering 1941, 1942, and 1943
were published earlier.

INTRODUCTION

China considerable reservoirs of good feeling, particularly among the
intellectuals and bourgeoisie in the cities. These reservoirs the Party
now set out to drain, as a part of the larger movement to eliminate
Western influence from China.

The last five articles in Volume IV of Mao’s Selected Works denounce
the United States in general and the White Paper in particular. Mao’s
editors describe the goals of the campaign when they say that these
pieces “exposed the imperialist nature of United States policy toward
China” and “criticized the illusions about U.S. imperialism harbored by
some of the bourgeois intellectuals.” 6 These articles were the signal for
an intense campaign that reached wherever Communist influence was
felt. In Nanking, for example, during more than a month following
Mao’s denunciation, only one issue of the Party paper failed to attack
the White Paper, and sometimes additional pages were needed for this
purpose. Mass rallies, well-attended by students and American-
trained intellectuals, were held in all cities under Communist control.

The campaign sought to discredit the United States for everything it
had done in China since the Treaty of Wanghia in 1844, and especially
for its recent actions. The Chinese Communists did not find it neces-
sary, or desirable, to translate the White Paper. Instead, they concen-
trated almost entirely on extracts from Acheson’s Letter of Transmittal:
the amount of aid given to the Nationalists; the assertion that the
United States had done all it could to support Chiang; the claim that the
“Communist leaders have foresworn their Chinese heritage” and are
subservient to Russia; and above all, the statement that the United
States should encourage developments to “throw off the foreign yoke.” 7

In this campaign, John Leighton Stuart, a former president of Yen-
ching University, was particularly singled out, both as our last ambassa-
dor on the mainland, and also because he represented so well all that
was finest in the American philanthropic and educational tradition in
China. In “Farewell, Leighton Stuart!” Mao denounced him as one
who “used to pretend to love both the United States and China.” The
article ends venomously: “Leighton Stuart has departed and the White
Paper has arrived. Very good. Very good. Both events are worth
celebrating.” 8

In Nationalist circles, the public and official reaction to the White
Paper was surprisingly mild. When it became known, late in July, that

6 Mao Tse-tung, Selected Works (Peking: Foreign Languages Press, 1961), IV, 426.

7 Deliberately or not, one phrase (on p. xvi) was usually mistranslated in such a way
that the United States appeared to be calling on Western-trained Chinese to revolt:
“ultimately the profound civilization and the democratic individualism [the Commu-
nist press here translates ‘democratic individualists’] of China will reassert themselves
and she will throw off the foreign yoke.”

8 Mao, Selected Works, IV, 439.

INTRODUCTION

such a document was about to be published, V. K. Wellington Koo, the
Chinese Ambassador, requested postponement. On August 6, he ac-
knowledged that China might have been “guilty of acts of commission
and omission in the past” but asserted that “mistakes have not been
confined to my country.” He stressed the common cause that China
was making still with the United States for freedom from Communism. 9
In Canton, Acting President Li Tsung-jen’s capital, there was anger and
dismay. Officially, however, Foreign Minister George Yeh stated on
August 16 that whereas the Nationalists took “serious exception” to the
White Paper on many points, “it is not the intention of the Chinese
Government to engage in controversy over past issues.” He was glad
to see, he said, that the two countries agreed completely on at least two
points: that the Chinese Communists were “thorough Marxists and
tools of Moscow,” and that the Soviet Union had violated the Treaty of
Friendship and Alliance with China. 10

Indirectly, the White Paper probably had something to do with the
later reforms in the Kuomintang. As CITen Ch’eng, then Governor of
Taiwan and later Vice-President, said at the time, “The White Paper
has awakened us; we must now start on the road to self-help. Hence
the publication of the White Paper will not cause us harm.” 11 Chiang
Kai-shek, then in nominal retirement, made no public statement and
advised against an official Nationalist effort to refute the White Paper.
Behind the scenes, however, the Nationalists continued to seek United
States military aid, and to press their cause through their advocates in
this country.

The reaction in the United States was predictably impassioned. No
one could assert— or tried to assert— that United States policy in China
had been successful. The best the Administration could hope for was
acceptance of the White Paper at face value. A few liberal publica-
tions, among them the New Republic and the Washington Post , accepted
it on these terms, but their voices went almost unheard in the clamor of
criticism. The White Paper was attacked both for the policies it de-
scribed and as a record of the effort to carry out those policies.

The main charges against the White Paper as a historical document
were overall bias, omission and distortion, and premature publication.
According to an editorial in the New York Times , “This inquest on
China is not the work of a serene and detached coroner but of a vitally
interested party to the catastrophe.” Time , speaking for the Luce
publications, called it a “lawyer’s brief.” Patrick Hurley, a vitally
interested party himself, denounced it as a “smooth alibi for the pro-

9 New York Times , Aug. 8, 1949, p. 2.

10 Ibid., Aug. 17, 1949, p. 4.

11 Ibid., Aug. 8, 1949, p. 2.

INTRODUCTION

Communists in the State Department who have engineered the over-
throw of our ally.” Many argued that the Administration was trying
to put all the blame on Chiang Kai-shek and assume none itself.

The State Department was also accused of deliberately omitting or
distorting documents that did not support the Truman- Acheson policy.
In the House, Walter Judd alleged sixteen instances of omission, falsi-
fication, or distortion. Acheson answered the allegations point by
point, and repeated his assertion that the White Paper was a “fair and
honest record”; the most important document referred to by Judd, he
pointed out, was not held by the State Department and was thus not
eligible for inclusion. 12 A few felt that the White Paper was slanted in
the other direction. Owen Lattimore, soon to be himself the center of
controversy, saw the White Paper as an effort to show “that in pursuit
of impeccably anti-Russian aims the United States had engaged in as
much intervention as the traffic could possibly bear.” 13

In handling the materials of history, each act of selection is also an act
of judgment, and therefore the charge of bias is never completely an-
swerable. But the charge that the White Paper was deliberately
slanted is not substantiated by any materials that have since been made
public. For the period from 1945 through 1948, the White Paper still
stands as our most important single source for the study of United
States relations with China.

The White Paper was also criticized for its timing. To some, the
Nationalists were “still stubbornly squirming with life,” and this docu-
ment would undermine their efforts to stem the Communist tide. There
were also those, including some within the State Department, who
agreed with everything about the White Paper except its publication.
They felt it was unnecessary and undignified for the United States to
rush into public print with matters best handled behind closed doors,
and with documents recently composed on the writers' assumption of
official privacy.

On the level of policy, critics of the White Paper generally took the
line that America's misguided or calculated failure to give Chiang Kai-
shek the help he needed to beat the Chinese Communists was leading to
Russian control of Asia. This charge broke down into a number of
more specific charges: (1) that at Yalta the United States had sold China
down the river to bribe Russia to enter a war we had already won; (2)
that the Marshall mission's effort to form a coalition government in
China had been designed to force the Nationalists into the lethal em-
brace of the Communists; (3) that in 1947 the Administration had sup-

12 Judd made his charges on August 19. For Acheson’s rebuttal, see Department of
State, Bulletin, Sept. 5, 1949, pp. 350-52, 359.

13 The Nation , Sept. 3, 1949, p. 223.

INTRODUCTION

pressed the Wedemeyer Report, which had recognized the Communist
threat to Asia and had called for aid to the Nationalists; (4) that reason-
able amounts of military aid, without American military participation
except for advisers, would have enabled Chiang to defeat the Chinese
Communists; (5) that disloyalty and pro-Communism in the State De-
partment had an evil influence on our China policy.

Although most of these charges remain in some minds controversial to
this day, some things seem clearer now than they did twenty years ago.
While Yalta, for example, was surely one of Roosevelt’s least auspicious
exercises in personal diplomacy, the record shows that Russia’s partici-
pation in the decisive struggle against Japan was still thought absolutely
necessary. Furthermore, Chiang had explicitly requested the United
States to act as mediator between China and Russia; in order to lure
Stalin away from the Chinese Communists, he had offered to make some
(not all) of the Yalta concessions that were later so bitterly assailed.

The unification of China by political means (that is, some form of
multi-party or coalition government) was the announced aim of both
the Nationalists and the Communists even before General Hurley ar-
rived on the scene in 1944. Not only Marshall, but Hurley before him,
tried to find some formula that both parties could agree on; indeed,
Hurley himself was the principal drafter of a set of proposals for the
Chinese Communists to present to the Nationalists. 14 He called its
terms “eminently fair,” adding that “if there is a breakdown in the par-
leys it will be the fault of the Government and not the Communists.”
So far as concessions to the Communist viewpoint are concerned, Hur-
ley’s proposal, which the Kuomintang found utterly unacceptable and
which Hurley complained to Roosevelt “had not been treated with due
consideration,” far surpassed any proposal later made by Marshall.

Acheson’s Letter of Transmittal stated that the Wedemeyer Report
had not been released because it called for Russian participation in a
five-power guardianship over Manchuria. But other considerations
were probably equally compelling. One was General Wedemeyer’s
blunt indictment of Nationalist corruption and incompetence, which
was about as sweeping in 1947 as the White Paper’s two years later.
Another was the self-contradictory nature of Wedemeyer’s recommenda-
tions: he concluded that “until drastic political and economic reforms
are undertaken, United States aid cannot accomplish its purpose,” yet
he called for extensive assistance to China “as early as practicable.” A
third was Wedemeyer’s ill-considered proposal that aid be granted only
if China requested advisers with considerable power in “specified eco-
nomic and military fields.” Chiang had never granted such powers in

14 Foreign Relations , 19J+J+: China , pp. 666-735, documents under file no. 1049; the
two brief quotations in the next sentence are from p. 693 and p. 734.

INTRODUCTION

the past; had he done so now, as Marshall realized, it would have been a
long step toward full-scale American involvement in the Chinese civil
war.

As for the amount of American aid to China, the whole issue has a
quality of unreality. Estimates of our aid to the Nationalist Govern-
ment ranged from a low of $110 million (Senators Bridges, Knowland,
Pat McCarran, and Kenneth Wherry, and the Chinese Embassy in
Washington) to a high of $5.9 billion (Mao). The State Department
(see pp. 1042-53) showed postwar aid of just over $2 billion, about half
of which was classed as military aid. To the Nationalists and their
supporters, any amount of aid would have been insufficient if it failed to
defeat the Communists. To those who opposed further military aid,
the fall of the Kuomintang was the result of its own inadequacies; the
waste of past aid showed that future aid would do no good, and nothing
in Chiang’s record warranted the risk of an open-ended American com-
mitment of unforeseeable size.

Surely the ugliest and probably the most damaging aspect of the
furor was the allegation of Communist influence in the State Depart-
ment. McCarthy’s charges finally proved baseless, but in the mean-
time lives and careers were ruined and lasting harm was done to the
conduct of America’s foreign policy. The reception of the White Paper
instructed many government officials in the value of caution, and per-
suaded numbers of capable young men to seek careers elsewhere. Some
of America’s most able and best qualified China specialists were dis-
missed from the State Department, later to be offered reinstatement and
back pay when it was shown that there was no case against them. Others
were transferred to less sensitive positions, where often the road to ad-
vancement was blocked by their previous association with fthina.
Some were persuaded to accept early retirement. In any case, their
long experience and intimate knowledge of China were lost. Among
the best known of these men were John Carter Vincent, John Stewart
Service, and John Paton Davies. Their reports on China in the 1940’s
have stood the test of time; by contrast, what few criticisms might be
made of their work now seem hardly more than cavils. Many of the
reports for which they were later condemned were penetrating insights
into Chinese political realities. They saw clearly, and warned their
superiors, of the danger of tying the United States irrevocably to a re-
gime that was rapidly discrediting itself and might well be unable to
survive. For telling unpleasant truths about the Nationalists, they
were later called Communists. Professor John K. Fairbank’s tribute
to them is no more than just: “These men were true China specialists
and we have no one like them today [1967]. In our lifetime we shall
never again get this much of a grasp of the Chinese scene.”

INTRODUCTION

Almost alone in its judiciousness and insight was Walter Lippmann's
reaction to the White Paper. 15 If Acheson was right that nothing the
United States had done or left undone had affected the outcome in
China (p. xvi), then, Lippmann asked, why did we continue so long and
at such cost to support the side we knew was going to lose? At the
time, he was one of the very few who saw and described Marshall's
dilemma, which reflected in a modern form America's traditional in-
ability to bring its China policy into line with its effective influence in
China.

Both critics and supporters of the Truman Administration knew that
the White Paper marked the end of an era, and both sides called for a
thoroughgoing reappraisal of our Far Eastern policy. Just before the
publication of the White Paper, Acheson announced that such a review
had been initiated within the State Department, that top-level outside
advice was being sought, and that close liaison would be maintained
with Congress and other agencies of the executive branch. On October
6-8, 1949, at a closed-door session on Far Eastern policy in Washington
some twenty-five China specialists, international businessmen, and
public figures (including Marshall, George F. Kennan, and Harold E.
Stassen) expressed their opinions on what course American policy should
take. 16 Subsequently, the trend of policy, which with certain excep-
tions represented rather well the sense of these discussions, was to with-
hold recognition from the Communists while at the same time further
dissociating the United States from the Nationalists. The United
States also indicated it would regard any Chinese Communist military
or political activity beyond the borders of China as a threat to peace.

This policy was plainly expressed in January 1950. In a series of
statements, Truman and Acheson indicated that the United States
would not provide military aid or advice to “the Chinese forces on
Formosa," that we intended to keep “hands off," and that the island,
having little strategic significance, lay outside our first line of defense in
the Western Pacific. Criticism of the Administration reached a new
pitch, fed now by McCarthy's charges, but the policy of disengagement
remained in force.

Early in the morning of June 25, 1950, North Korea launched its in-
vasion of South Korea. Truman reacted immediately through the
United Nations. Two days later, on June 27, he sent the Seventh Fleet
into the Straits of Formosa with orders to prevent any attack on the is-

15 In the columns of the New York Herald Tribune on Sept. 6, 8, and 12, 1949.

16 The transcript of the discussions is contained in U.S. Senate, Committee on the
Judiciary, Subcommittee to Investigate the Administration of the Internal Security
Act, Hearings on the Institute of Pacific Relations , 82d Cong., 1st Sess. (1951), pp. 1551-

INTRODUCTION

land. Our present commitment to the Nationalist Government dates
from that order. The Korean War thus brought to a sudden end the
policy that the Administration had followed for two years, and com-
mitted us once again to involvement in the Chinese civil war.

Because history never repeats itself exactly, no two historical situa-
tions are entirely analogous. But a number of parallels between the
more recent situation in Vietnam and the earlier situation in China are
too striking to be ignored. In both situations, our recognition and
support went to a regime with acknowledged shortcomings but to which
there seemed to be no adequate alternative. In both there existed the
elements of both civil war and international aggression, with a great
debate about which was the dominant force. In both there were abun-
dant predictions that limited aid and advice, without direct American
military participation, would bring victory in a short period of time. And
in both, withdrawal became more difficult as time went on. The ob-
vious difference is that in Vietnam the decision was made to engage. In
Vietnam, smaller in size and population than many Chinese provinces,
what began as limited and indirect assistance has grown to a half million
men and $2 billion per month. In retrospect, it appears that Marshall
saw clearly where further intervention would have led in China (p. 382) :
“The U.S. would have to be prepared virtually to take over the Chinese
Government and administer its economic, military and governmental
affairs. ... It would involve this Government in a continuing commit-
ment from which it would be practically impossible to withdraw, and it
would very probably involve grave consequences to this nation by
making of China an arena of international conflict. ”

These reflections lead us back to crucial questions, questions that the
White Paper raises but cannot fully answer because America itself has
not yet given the answers. If in China there was a gap between what
we said and what we did, in Vietnam the United States has tried to close
this gap not by expressing its goals in less sweeping terms but by pur-
suing them with vastly greater force. Are the goals of United States
Asian policy justified? Is the United States able to achieve such goals?
And at what point does the employment of force render meaningless the
very goals it seeks? In China as in Vietnam, other issues may have
seemed more immediate, but these questions persist. Parts of the an-
swer may lie in a purblind anti-Communism, in the illusion of American
omnipotence, and in the force of American self-righteousness. Other
answers may lie in the cultural gap across the Pacific and our underesti-
mation of the difficulties involved; and still other answers may suggest
themselves to attentive readers of the record that follows. A partial
answer is perhaps all we shall have in our time.

THE CHINA WHITE PAPER

United States Relations With

With Special Reference
to the Period 1944-1949

BASED ON THE FILES OF THE DEPARTMENT OF STATE

Letter of Transmittal

Department of State
Washington, July SO , 1949

The President: In accordance with your wish, I have had com-
piled a record of our relations with China, special emphasis being
placed on the last five years. This record is being published and will
therefore be available to the Congress and to the people of the United
States.

Although the compilation is voluminous, it necessarily covers a
relatively small part of the relations between China and the United
States. Since the beginning of World War II, these relations have
involved many Government departments and agencies. The prepara-
tion of the full historical record of that period is by no means yet
complete. Because of the great current interest in the problems con-
fronting China, I have not delayed publication until the complete
analysis could be made of the archives of the National Military Estab-
lishment, the Treasury Department, the Lend-Lease Administration,
the White House files and many other official sources. However, I
instructed those charged with the compilation of this document to
present a record which would reveal the salient facts which determined
our policy toward China during this period and which reflect the
execution of that policy. This is a frank record of an extremely com-
plicated and most unhappy period in the life of a great country to
which the United States has long been attached by ties of
closest friendship. No available item has been omitted because
it contains statements critical of our policy or might be the basis of
future criticism. The inherent strength of our system is the respon-
siveness of the Government to an informed and critical public opinion.
It. is precisely this informed and critical public opinion which totali-
tarian governments, whether Rightist or Communist, cannot endure
and do not tolerate.

The interest of the people and the Government of the United States
in China goes far back into our history. Despite the distance and
broad differences in background which separate China and the United
States, our friendship for that country has always been intensified by

m

IV

LETTER OF TRANSMITTAL

the religious, philanthropic and cultural ties which have united the
two peoples, and has been attested by many acts of good will over a
period of many years, including the use of the Boxer indemnity for
the education of Chinese students, the abolition of extraterritoriality
during the Second World War, and our extensive aid to China dur-
ing and since the close of the war. The record shows that the United
States has consistently maintained and still maintains those funda-
mental principles of our foreign policy toward China which include
the doctrine of the Open Door, respect for the administrative and
territorial integrity of China, and opposition to any foreign domina-
tion of China. It is deplorable that respect for the truth in the
compilation of this record makes it necessary to publish an account of
facts which reveal the distressing situation in that country. I have
not felt, however, that publication could be withheld for that reason.

The record should be read in the light of conditions prevailing when
the events occurred. It must not be forgotten, for example, that
throughout World War II we were allied with Russia in the struggle
to defeat Germany and Italy, and that a prime object of our policy
was to bring Russia into the struggle against Japan in time to be of
real value in the prosecution of the war. In this period, military
considerations were understandably predominant over all others. Our
most urgent purpose in the Far East was to defeat the common enemy
and save the lives of our own men and those of our comrades-in-arms,
the Chinese included. We should have failed in our manifest duty
had we pursued any other course.

In the years since V-J Day, as in the years before Pearl Harbor,
military considerations have been secondary to an earnest desire on our
part to assist the Chinese people to achieve peace, prosperity and in-
ternal stability. The decisions and actions of our Government to pro-
mote these aims necessarily were taken on the basis of information
available at the time. Throughout this tragic period, it has been fully
realized that the material aid, the military and technical assistance,
and the good will of the United States, however abundant, could not
of themselves put China on her feet. In the last analysis, that can be
done only by China herself.

Two factors have played a major role in shaping the destiny of
modern China.

The population of China during the eighteenth and nineteenth cen-
turies doubled, thereby creating an unbearable pressure upon the land.
The first problem which every Chinese Government has had to face
is that of feeding this population. So far none has succeeded. The
Kuomintang attempted to solve it by putting many land-reform laws
on the statute books. Some of these laws have failed, others have

LETTER OF TRANSMITTAL

V

been ignored. In no small measure, the predicament in which the
National Government finds itself today is due to its failure to provide
China with enough to eat. A large part of the Chinese Communists’
propaganda consists of promises that they will solve the land problem.

The second major factor which has shaped the pattern of contem-
porary China is the impact of the West and of Western ideas. For
more than three thousand years the Chinese developed their own high
culture and civilization, largely untouched by outside influences. Even
when subjected to military conquest the Chinese always managed in
the end to subdue and absorb the invader. It was natural therefore
that they should come to look upon themselves as the center of the
world and the highest expression of civilized mankind. Then in the
middle of the nineteenth century the heretofore impervious wall of
Chinese isolation was breached by the West. These outsiders brought
with them aggressiveness, the unparalleled development of Western
technology, and a high order of culture which had not accompanied
previous foreign incursions into China. Partly because of these
qualities and partly because of the decay of Manchu rule, the
Westerners, instead of being absorbed by the Chinese, introduced new
ideas which played an important part in stimulating ferment and
unrest.

By the beginning of the twentieth century, the combined force of
overpopulation and new ideas set in motion that chain of events which
can be called the Chinese revolution. It is one of the most imposing
revolutions in recorded history and its outcome and consequences
are yet to be foreseen. Out of this revolutionary whirlpool emerged
the Kuomintang, first under the leadership of Dr. Sun Yat-sen, and
later Generalissimo Chiang Kai-shek, to assume the direction of the
revolution. The leadership of the Kuomintang was not challenged
until 1927 by the Chinese Communist party which had been organized
in the early twenties under the ideological impetus of the Russian
revolution. It should be remembered that Soviet doctrine and prac-
tice had a measurable effect upon the thinking and principles of
Dr. Sun Yat-sen, particularly in terms of economics and party or-
ganization, and that the Kuomintang and the Chinese Communists
cooperated until 1927 when the Third International demanded a pre-
dominant position in the Government and the army. It was this de-
mand which precipitated the break between the two groups. To a
large extent the history of the period between 1927 and 1937 can be
written in terms of the struggle for power between the Kuomintang
and the Chinese Communists, with the latter apparently fighting a
losing battle. During this period the Kuomintang made considerable
progress in its efforts to unify the country and to build up the nation’s

VI

LETTER OF TRANSMITTAL

financial and economic strength. Somewhere during this decade,
however, the Kuomintang began to lose the dynamism and revolu-
tionary fervor which had created it, while in the Chinese Communists
the fervor became fanaticism.

Perhaps largely because of the progress being made in China, the
Japanese chose 1937 as the departure point for the conquest of China
proper, and the goal of the Chinese people became the expulsion of
a brutal and hated invader. Chinese resistance against Japan dur-
ing the early years of the war compelled the unqualified admiration
of freedom-loving peoples throughout the world. Until 1940 this
resistance was largely without foreign support. The tragedy of these
years of war was that physical and human devastation to a large ex-
tent destroyed the emerging middle class which historically has been
the backbone and heart of liberalism and democracy.

In contrast also to the unity of the people of China in the war
against Japan were the divided interests of the leaders of the Kuo-
mintang and of the Chinese Communists. It became apparent in the
early forties that the leaders of the Government, just as much as the
Communist leaders, were still as preoccupied with the internal
struggle for power as they were with waging war against Japan.
Once the United States became a participant in the war, the Kuomin-
tang was apparently convinced of the ultimate defeat of Japan and
saw an opportunity to improve its position for a show-down struggle
with the Communists. The Communists, for their part, seemed to
see in the chaos of China an opportunity to obtain that which had
been denied them before the Japanese war, namely, full power in
China. This struggle for power in the latter years of the war con-
tributed largely to the partial paralysis of China’s ability to resist.

It was precisely here that two of the fundamental principles of
United States policy in regard to China — noninterference in its in-
ternal affairs and support of its unity and territorial integrity — came
into conflict and that one of them also conflicted with the basic in-
terests of the Allies in the war against J apan. It seemed highly prob-
able in 1943 and 1944 that, unless the Chinese could subordinate their
internal interests to the larger interest of the unified war effort
against Japan, Chinese resistance would become completely ineffective
and the Japanese would be able to deprive the Allies of valuable bases,
operating points and manpower in China at a time when the outcome
of the war against Japan was still far from clear. In this situation
and in the light of the paramount necessity of the most vigorous prose-
cution of the war, in which Chinese interests were equally at stake
with our own, traditional concepts of policy had to be adapted to a new
and unprecedented situation.

LETTER OF TRANSMITTAL

VII

After Pearl Harbor we expanded the program of military and
economic aid which we had inaugurated earlier in 1941 under the
Lend-Lease Act. That program, described in chapter I of the at-
tached record, was far from reaching the volume which we would
have wished because of the tremendous demands on the United States
from all theaters of a world-wide war and because of the difficulties
of access to a China all of whose ports were held by the enemy. Never-
theless it was substantial.

Representatives of our Government, military and civilian, who were
sent to assist the Chinese in prosecuting the war soon discovered that,
as indicated above, the long struggle had seriously weakened the
Chinese Government not only militarily and economically, but also
politically and in morale. The reports of United States military and
diplomatic officers reveal a growing conviction through 1943 and 1944
that the Government and the Kuomintang had apparently lost the
crusading spirit that won them the people’s loyalty during the early
years of the war. In the opinion of many observers they had sunk
into corruption, into a scramble for place and power, and into reliance
on the United States to win the war for them and to preserve their
own domestic supremacy. The Government of China, of course, had
always been a one-party rather than a democratic government in the
Western sense. The stresses and strains of war were now rapidly
weakening such liberal elements as it did possess and strengthening
the grip of the reactionaries who were indistinguishable from the
war lords of the past. The mass of the Chinese people were coming
more and more to lose confidence in the Government.

It was evident to us that only a rejuvenated and progressive Chinese
Government which could recapture the enthusiastic loyalty of the
people could and would wage an effective war against Japan. Amer-
ican officials repeatedly brought their concern with this situation to
the attention of the Generalissimo and he repeatedly assured them that
it would be corrected. He made, however, little or no effective effort
to correct it and tended to shut himself off from Chinese officials who
gave unpalatable advice. In addition to a concern over the effect
which this atrophy of the central Chinese administration must have
upon the conduct of the war, some American observers, whose reports
are also quoted in the attached record, were concerned over the effect
which this deterioration of the Kuomintang must have on its eventual
struggle, whether political or military, with the Chinese Communists.
These observers were already fearful in 1943 and 1944 that the Na-
tional Government might be so isolating itself from the people that
in the postwar competition for power it would prove itself impotent

VIII

LETTER OF TRANSMITTAL

to maintain its authority. Nevertheless, we continued for obvious
reasons to direct all our aid to the National Government.

This was of course the period during which joint prosecution of
the war against Nazi Germany had produced a degree of cooperation
between the United States and Russia. President Roosevelt was de-
termined to do what he could to bring about a continuance in the post-
war period of the partnership forged in the fire of battle. The peoples
of the world, sickened and weary with the excesses, the horrors, and the
degradation of the war, shared this desire. It has remained for the
postwar years to demonstrate that one of the major partners in
this world alliance seemingly no longer pursues this aim, if indeed
it ever did.

When Maj. Gen. Patrick J. Hurley was sent by President Roosevelt
to Chungking in 1944 he found what he considered to be a willingness
on the part of the National Government and the Chinese Communists
to lay aside their differences and cooperate in a common effort. Al-
ready they had been making sporadic attempts to achieve this result.

Previously and subsequently, General Hurley had been assured by
Marshal Stalin that Russia had no intention of recognizing any
government in China except the National Government with Chiang
Kai-shek as its leader. It may be noted that during the late war years
and for a time afterwards Marshal Stalin reiterated these views to
American officials. He and Molotov expressed the view that China
should look to the United States as the principal possible source of
aid. The sentiments expressed by Marshal Stalin were in large part
incorporated in the Sino-Soviet treaty of 1945.

From the wartime cooperation with the Soviet Union and from the
costly campaigns against the Japanese came the Yalta Agreement.
The American Government and people awaited with intense anxiety
the assault on the main islands of J apan which it was feared would cost
up to a million American casualties before Japan was conquered.
The atomic bomb was not then a reality and it seemed impossible that
the war in the Far East could be ended without this assault. It thus
became a primary concern of the American Government to see to it that
the Soviet Union enter the war against Japan at the earliest possible
date in order that the Japanese Army in Manchuria might not be
returned to the homeland at the critical moment. It was considered
vital not only that the Soviet Union enter the war but that she do
so before our invasion of Japan, which already had been set for the
autumn of 1945.

At Yalta, Marshal Stalin not only agreed to attack Japan within
two or three months after V-E Day but limited his “price” with refer-
ence to Manchuria substantially to the position which Russia had

LETTER OF TRANSMITTAL

IX

occupied there prior to 1904. We for our part, in order to obtain this
commitment and thus to bring the war to a close with a consequent
saving of American, Chinese and other Allied lives, were prepared to
and did pay the requisite price. Two facts must not, however, be
lost sight of in this connection. First, the Soviet Union when she
finally did enter the war against Japan, could in any case have seized
all the territories in question and considerably more regardless of what
our attitude might have been. Second, the Soviets on their side in the
Sino-Soviet Treaty arising from the Yalta Agreement, agreed to give
the National Government of China moral and material support and
moreover formalized their assurances of noninterference in China’s in-
ternal affairs. Although the unexpectedly early collapse of Japanese
resistance later made some of the provisions of the Yalta Agreement
seem unnecessary, in the light of the predicted course of the war at
that time they were considered to be not only justified but clearly
advantageous. Although dictated by military necessity, the Agree-
ment and the subsequent Sino-Soviet Treaty in fact imposed limita-
tions on the action which Russia would, in any case, have been in a
position to take.

For reasons of military security, and for those ohly, it was con-
sidered too dangerous for the United States to consult with the Na-
tional Government regarding the Yalta Agreement or to communicate
its terms at once to Chungking. We were then in the midst of the
Pacific War. It was felt that there was grave risk that secret informa-
tion transmitted to the Nationalist capital at this time would become
available to the Japanese almost immediately. Under no circum-
stances, therefore, would we have been justified in incurring the secur-
ity risks involved. It was not until June 15, 1945, that General Hurley
was authorized to inform Chiang Kai-shek of the Agreement.

In conformity with the Russian agreement at Yalta to sign a treaty
of friendship and alliance with Nationalist China, negotiations be-
tween the two nations began in Moscow in July 1945. During their
course, the United States felt obliged to remind both parties that the
purpose of the treaty was to implement the Yalta Agreement — no
more, no less — and that some of the Soviet proposals exceeded its pro-
visions. The treaty, which was signed on August 14, 1945, was greeted
with general satisfaction both in Nationalist China and in the United
States. It was considered that Russia had accepted definite limita-
tions on its activities in China and was committed to withhold all
aid from the Chinese Communists. On September 10, however, our
embassy in Moscow cautioned against placing undue confidence in the
Soviet observance of either the spirit or letter of the treaty. The

X

LETTER OF TRANSMITTAL

subsequent conduct of the Soviet Government in Manchuria has amply
justified this warning.

When peace came the United States was confronted with three
possible alternatives in China : (1) it could have pulled out lock, stock
and barrel; (2) it could have intervened militarily on a major scale
to assist the Nationalists to destroy the Communists ; (3) it could, while
assisting the Nationalists to assert their authority over as much of
China as possible, endeavor to avoid a civil war by working for a
compromise between the two sides.

The first alternative would, and I believe American public opinion
at the time so felt, have represented an abandonment of our inter-
national responsibilities and of our traditional policy of friendship
for China before we had made a determined effort to be of assistance.
The second alternative policy, while it may look attractive theoreti-
cally and in retrospect, was wholly impracticable. The Nationalists
had been unable to destroy the Communists during the 10 years
before the war. Now after the war the Nationalists were, as indicated
above, weakened, demoralized, and unpopular. They had quickly
dissipated their popular support and prestige in the areas liberated
from the Japanese by the conduct of their civil and military officials.
The Communists on the other hand were much stronger than they had
ever been and were in control of most of North China. Because of
the ineffectiveness of the Nationalist forces which was later to be tragi-
cally demonstrated, the Communists probably could have been dis-
lodged only by American arms. It is obvious that the American people
would not have sanctioned such a colossal commitment of our armies in
1945 or later. We therefore came to the third alternative policy
whereunder we faced the facts of the situation and attempted to
assist in working out a modus vivendi which would avert civil war but
nevertheless preserve and even increase the influence of the National
Government.

As the record shows, it was the Chinese National Government itself
which, prior to General Hurley’s mission, had taken steps to arrive
at a working agreement with the Communists. As early as September
1943 in addressing the Kuomintang Central Executive Committee,
the Generalissimo said, “we should clearly recognize that the Commu-
nist problem is a purely political problem and should be solved by
political means.” He repeated this view on several occasions. Com-
prehensive negotiations between representatives of the Government
and of the Communists, dealing with both military cooperation and
civil administration, were opened in Sian in May 1944. These nego-
tiations, in which Ambassador Hurley later assisted at the invitation
of both parties between August 1944 and September 1945, continued

LETTER OF TRANSMITTAL

XI

intermittently during a year and a half without producing conclusive
results and culminated in a comprehensive series of agreements on
basic points on October 11, 1945, after Ambassador Hurley’s departure
from China and before General Marshall’s arrival. Meanwhile, how-
ever, clashes between the armed forces of the two groups were increas-
ing and were jeopardizing the fulfillment of the agreements. The
danger of wide-spread civil war, unless the negotiations could
promptly be brought to a successful conclusion, was critical. It was
under these circumstances that General Marshall left on his mission to
China at the end of 1945.

As the account of General Marshall’s mission and the subsequent
years in chapters V and VI of the underlying record reveals, our
policy at that time was inspired by the two objectives of bringing
peace to China under conditions which would permit stable govern-
ment and progress along democratic lines, and of assisting the Na-
tional Government to establish its authority over as wide areas of
China as possible. As the event proved, the first objective was unreal-
izable because neither side desired it to succeed: the Communists
because they refused to accept conditions which would weaken their
freedom to proceed with what remained consistently their aim, the
communization of all China; the Nationalists because they cherished
the illusion, in spite of repeated advice to the contrary from our mili-
tary representatives, that they could destroy the Communists by
force of arms.

The second objective of assisting the National Government, how-
ever, we pursued vigorously from 1945 to 1949. The National Gov-
ernment was the recognized government of a friendly power. Our
friendship, and our right under international law alike, called for aid
to the Government instead of to the Communists who were seeking to
subvert and overthrow it. The extent of our aid to Nationalist China
is set forth in detail in chapters V, VI, VII and VIII of the record and
need not be repeated here. The National Government had in 1945,
and maintained until the early fall of 1948, a marked superiority in
manpower and armament over their rivals. Indeed during that
period, thanks very largely to our aid in transporting, arming and
supplying their forces, they extended their control over a large part
of North China and Manchuria. By the time General Marshall left
China at the beginning of 1947, the Nationalists were apparently at
the very peak of their military successes and territorial expansion.
The following year and a half revealed, however, that their seeming
strength was illusory and that their victories were built on sand.

The crisis had developed around Manchuria, traditional focus of
Bussian and Japanese imperialism. On numerous occasions, Mar-

XII

LETTER OF TRANSMITTAL

shal Stalin had stated categorically that he expected the National
Government to take over the occupation of Manchuria. In the truce
agreement of January 10, 1946, the Chinese Communists agreed to
the movement of Government troops into Manchuria for the purpose
of restoring Chinese sovereignty over this area. In conformity with
this understanding the United States transported sizable government
armies to the ports of entry into Manchuria. Earlier the Soviet Army
had expressed a desire to evacuate Manchuria in December 1945, but
had remained an additional two or three months at the request of the
Chinese Government. When the Russian troops did begin their
evacuation, the National Government found itself with extended lines
of communications, limited rolling stock and insufficient forces to
take over the areas being evacuated in time to prevent the entry of
Chinese Communist forces, who were already in occupation of the
countryside. As the Communists entered, they obtained the large
stocks of materiel from the Japanese Kwantung Army which the Rus-
sians had conveniently “abandoned.” To meet this situation the
National Government embarked on a series of military campaigns
which expanded the line of its holdings to the Sungari River. Toward
the end of these campaigns it also commenced hostilities within North
China and succeeded in constricting the areas held by the Communists.

In the spring of 1946 General Marshall attempted to restore peace.
This effort lasted for months and during its course a seemingly end-
less series of proposals and counterproposals were made which had
little effect upon the course of military activities and produced no
political settlement. During these negotiations General Marshall
displayed limitless patience and tact and a willingness to try and
then try again in order to reach agreement. Increasingly he became
convinced, however, that twenty years of intermittent civil war be-
tween the two factions, during which the leading figures had remained
the same, had created such deep personal bitterness and such irrecon-
cilable differences that no agreement was possible. The suspicions
and the lack of confidence were beyond remedy. He became con-
vinced that both parties were merely sparring for time, jockeying for
military position and catering temporarily to what they believed to
be American desires. General Marshall concluded that there was
no hope of accomplishing the objectives of his mission.

Even though for all practical purposes General Marshall, by the fall
of 1946, had withdrawn from his efforts to assist in a peaceful settle-
ment of the civil war, he remained in China until January 1947. One
of the critical points of dispute between the Government and the
Communists had been the convocation of the National Assembly to
write a new constitution for China and to bring an end to the period

LETTER OF TRANSMITTAL

XIII

of political tutelage and of one-party government. The Communists
had refused to participate in the National Assembly unless there
were a prior military settlement. The Generalissimo was determined
that the Assembly should be held and the program carried out. It
was the hope of General Marshall during the late months of 1946
that his presence in China would encourage the liberal elements in
non-Communist China to assert themselves more forcefully than they
had in the past and to exercise a leavening influence upon the abso-
lutist control wielded by the reactionaries and the militarists. General
Marshall remained in China until the Assembly had completed its
work. Even though the proposed new framework of government
appeared satisfactory, the evidence suggested that there had been
little shift in the balance of power.

In his farewell statement, General Marshall announced the termina-
tion of his efforts to assist the Chinese in restoring internal peace. He
described the deep-seated mutual suspicion between the Kuomin-
tang and the Chinese Communist Party as the greatest obstacle to a
settlement. He made it clear that the salvation of China lay in the
hands of the Chinese themselves and that, while the newly adopted
constitution provided the framework for a democratic China, practical
measures of implementation by both sides would be the decisive test.
He appealed for the assumption of leadership by liberals in and out
of the Government as the road to unity and peace. With these final
words he returned to Washington to assume, in January 1947, his
new post as Secretary of State.

As the signs of impending disaster multiplied, the President in July
1947, acting on the recommendation of the Secretary of State, in-
structed Lt. Gen. Albert C. Wedemeyer to survey the Chinese scene
and make recommendations. In his report, submitted on September
19, 1947, the General recommended that the United States continue and
expand its policy of giving aid to Nationalist China, subject to these
stipulations :

1. That China inform the United Nations of her request for aid.

2. That China request the United Nations to bring about a truce in
Manchuria and request that Manchuria be placed under a Five-Power
guardianship or a trusteeship.

3. That China utilize her own resources, reform her finances, her
Government and her armies, and accept American advisers in the
military and economic fields.

General Wedemeyer’s report, which fully recognized the danger of
Communist domination of all China and was sympathetic to the prob-
lems of the National Government, nevertheless listed a large number

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LETTER OF TRANSMITTAL

of reforms which he considered essential if that Government were
to rehabilitate itself.

It was decided that the publication at that time of a suggestion for
the alienation of a part of China from the control of the National
Government, and for placing that part under an international ad-
ministration to include Soviet Russia, would not be helpful. In this
record, the full text of that part of General Wedemeyer’s report which
deals with China appears as an annex to chapter VI.

The reasons for the failures of the Chinese National Government
appear in some detail in the attached record. They do not stem from
any inadequacy of American aid. Our military observers on the spot
have reported that the Nationalist armies did not lose a single battle
during the crucial year of 1948 through lack of arms or ammunition.
The fact was that the decay which our observers had detected in
Chungking early in the war had fatally sapped the powers of resist-
ance of the Kuomintang. Its leaders had proved incapable of meeting
the crisis confronting them, its troops had lost the will to fight, and
its Government had lost popular support. The Communists, on the
other hand, through a ruthless discipline and fanatical zeal, attempted
to sell themselves as guardians and liberators of the people. The
Nationalist armies did not have to be defeated; they disintegrated.
History has proved again and again that a regime without faith in
itself and an army without morale cannot survive the test of battle.

The record obviously can not set forth in equal detail the inner
history and development of the Chinese Communist Party during these
years. The principal reason is that, while we had regular diplomatic
relations with the National Government and had the benefit of volu-
minous reports from our representatives in their territories, our direct
contact with the Communists was limited in the main to the mediation
efforts of General Hurley and General Marshall.

Fully recognizing that the heads of the Chinese Communist Party
were ideologically affiliated with Moscow, our Government neverthe-
less took the view, in the light of the existing balance of forces in
China, that peace could be established only if certain conditions were
met. The Kuomintang would have to set its own house in order and
both sides would have to make concessions so that the Government of
China might become, in fact as well as in name, the Government of all
China and so that all parties might function within the constitutional
system of the Government. Both internal peace and constitutional
development required that the progress should be rapid from one
party government with a large opposition party in armed rebellion,
to the participation of all parties, including the moderate non-com-
munist elements, in a truly national system of government.

LETTER OF TRANSMITTAL

XV

None of these conditions has been realized. The distrust of the
leaders of both the Nationalist and Communist Parties for each other
proved too deep-seated to permit final agreement, notwithstanding
temporary truces and apparently promising negotiations. The Na-
tionalists, furthermore, embarked in 1946 on an over-ambitious mili-
tary campaign in the face of warnings by General Marshall that it
not only would fail but would plunge China into economic chaos and
eventually destroy the National Government. General Marshall
pointed out that though Nationalist armies could, for a period, cap-
ture Communist-held cities, they could not destroy the Communist
armies. Thus every Nationalist advance would expose their commu-
nications to attack by Communist guerrillas and compel them to retreat
or to surrender their armies together with the munitions which the
United States has furnished them. No estimate of a military situation
has ever been more completely confirmed by the resulting facts.

The historic policy of the United States of friendship and aid
toward the people of China was, however, maintained in both peace
and war. Since V-J Day, the United States Government has author-
ized aid to Nationalist China in the form of grants and credits totaling
approximately 2 billion dollars, an amount equivalent in value to
more than 50 percent of the monetary expenditures of the Chinese
Government and of proportionately greater magnitude in relation to
the budget of that Government than the United States has provided
to any nation of Western Europe since the end of the war. In addition
to these grants and credits, the United States Government has sold
the Chinese Government large quantities of military and civilian war
surplus property with a total procurement cost of over 1 billion
dollars, for which the agreed realization to the United States was
232 million dollars. A large proportion of the military supplies fur-
nished the Chinese armies by the United States since Y-J Day has,
however, fallen into the hands of the Chinese Communists through the
military ineptitude of the Nationalist leaders, their defections and
surrenders, and the absence among their forces of the will to fight.

It has been urged that relatively small amounts of additional aid —
military and economic — to the National Government would have
enabled it to destroy communism in China. The most trustworthy
military, economic, and political information available to our Govern-
ment does not bear out this view.

A realistic appraisal of conditions in China, past and present, leads
to the conclusion that the only alternative open to the United States
was full-scale intervention in behalf of a Government which had lost
the confidence of its own troops and its own people. Such inter-
vention would have required the expenditure of even greater sums

XVI

LETTER OF TRANSMITTAL

than have been fruitlessly spent thus far, the command of Nationalist
armies by American officers, and the probable participation of Ameri-
can armed forces — land, sea, and air — in the resulting war. Inter-
vention of such a scope and magnitude would have been resented by
the mass of the Chinese people, would have diametrically reversed
our historic policy, and would have been condemned by the American
people.

It must be admitted frankly that the American policy of assisting
the Chinese people in resisting domination by any foreign power or
powers is now confronted with the gravest difficulties. The heart
of China is in Communist hands. The Communist leaders have fore-
sworn their Chinese heritage and have publicly announced their sub-
servience to a foreign power, Russia, which during the last 50 years,
under czars and Communists alike, has been most assiduous in its
efforts to extend its control in the Far East. In the recent past,
attempts at foreign domination have appeared quite clearly to the
Chinese people as external aggression and as such have been bitterly
and in the long run successfully resisted. Our aid and encouragement
have helped them to resist. In this case, however, the foreign domina-
tion has been masked behind the fagade of a vast crusading movement
which apparently has seemed to many Chinese to be wholly indigenous
and national. Under these circumstances, our aid has been unavailing.

The unfortunate but inescapable fact is that the ominous result of
the civil war in China was beyond the control of the government of
the United States. Nothing that this country did or could have done
within the reasonable limits of its capabilities could have changed that
result; nothing that was left undone by this country has contributed
to it. It was the product of internal Chinese forces, forces which this
country tried to influence but could not. A decision was arrived at
within China, if only a decision by default.

And now it is abundantly clear that we must face the situation as
it exists in fact. We will not help the Chinese or ourselves by basing
our policy on wishful thinking. We continue to believe that, however
tragic may be the immediate future of China and however ruthlessly
a major portion of this great people may be exploited by a party in the
interest of a foreign imperialism, ultimately the profound civilization
and the democratic individualism of China will reassert themselves
and she will throw off the foreign yoke. I consider that we should
encourage all developments in China which now and in the future
work toward this end.

In the immediate future, however, the implementation of our his-
toric policy of friendship for China must be profoundly affected by
current developments. It will necessarily be influenced by the degree

LETTER OF TRANSMITTAL

XVII

to which the Chinese people come to recognize that the Communist
regime serves not their interests but those of Soviet Russia and the
manner in which, having become aware of the facts, they react to this
foreign domination. One point, however, is clear. Should the Com-
munist regime lend itself to the aims of Soviet Russian imperialism
and attempt to engage in aggression against China’s neighbors, we
and the other members of the United Nations would be confronted by
a situation violative of the principles of the United Nations Charter
and threatening international peace and security.

Meanwhile our policy will continue to be based upon our own respect
for the Charter, our friendship for China, and our traditional support
for the Open Door and for China’s independence and administrative
and territorial integrity.

Respectfully yours,

Dean Acheson

Contents

Page.

Letter of Transmittal hi

Chronology of Principal Events Affecting Sino-American
Relations xxxvn

CHAPTER I

A Century of American Policy , 1844-1948

I. Introduction 1

II. Development of Basic American Policy 1

Equality of Commercial Opportunity 1

Enunciation of the Open Door Policy 2

Early Efforts to Maintain the Open Door 3

The Root-Takahira Agreement, 1908 5

The Knox “Neutralization” Proposals, 1909 ... 5

III. World War I and Post-War Settlements 6

Hostilities in China 6

The Twenty-one Demands, 1915 7

The Lansing-Ishii Agreement, November 2, 1917 . . 8

Settlement of the Shantung Question 9

The Nine-Power Treaty, February 6, 1922 10

IV. Non-Interference in Chinese Internal Affairs — The

Washington Conference and After 10

Statement by Secretary Kellogg, January 27, 1927 . 11

Recognition of the National Government, 1928 ... 12

V. The Sino-Soviet Dispute in 1929 12

VI. Japanese Expansion into China from 1931 13

The Non-Recognition Doctrine of Secretary Stimson . 13

Defense of American Treaty Rights in China .... 15

Statement by Secretary Hull, December 5, 1935 . . 17

VII. The Japanese Undeclared War of 1937 18

The “Quarantine” Speech of President Roosevelt,

October 5, 1937 19

Defense of the Principle of the Open Door 19

Defense of Chinese Integrity 23

United States Support of Chinese Resistance .... 24

American-Japanese Informal Conversations in 1941 . . 25

XIX

XX

CONTENTS

Page

VIII. World War II 26

The LeDd-Lease Program, 1941-1943 26

Military Aid, 1941-1943 28

Financial Aid, 1937-1943 31

Relinquishment of American Extraterritoriality in

China 34

Repeal of Chinese Exclusion Acts, 1943 37

American Acknowledgment of China as a Great

Power 37

CHAPTER II

A Review of Kuomintang-Chinese Communist Relations , 1921-1944

I. Introduction 38

II. Basic Factors 38

The Kuomintang Program 38

The Communist Program 40

Foundation of the Communist Party, 1921 41

Reorganization of the Kuomintang, 1924 42

III. Kuomintang-Communist Collaboration, 1924-1927 . . 43

IV. Civil War, 1927-1936 44

V. The Kuomintang-Communist Entente, 1937—1944 ... 45

Background of the Entente 45

Third Plenary Session of the Kuomintang Central

Executive Committee, 1937 48

Manifesto of the Chinese Communist Party, Septem-
ber 22, 1937 50

Statement by Generalissimo Chiang Kai-shek, Sep-
tember 23, 1937 51

Implementation of the Agreements, 1937-1938 ... 51

Deterioration of Kuomintang-Communist Relations,

1938-1941 52

Kuomintang-Communist Negotiations, 1941-1944 . . 53

The Wallace Mission, 1944 55

Conclusion 57

CHAPTER III

The Ambassadorship of Major General Patrick J. Hurley ,
1944-1945

I. Immediate Background of the Hurley Mission .... 59

Introduction 59

Chinese Unity and the War Effort 61

CONTENTS XXI

Page

I. Immediate Background of the Hurley Mission — Con.

Pessimism of Ambassador Gauss 64

The Military Factor 65

President Roosevelt's Messages to Generalissimo

Chiang Kai-shek, July-August 1944 66

Reports by General Stilwell 68

General Hurley’s Instructions 71

General Hurley’s Talk with Mr. Molotov 71

II. The Effort at Mediation 73

Initial Steps 73

The Five-Point Draft Agreement, November 10, 1944 . 74

The Three-Point Plan 75

Reply of the Chinese Communists 75

The Conference at Chungking 73

The National Government's Proposal 78

The Communist Party's Reaction 79

Conference with the Generalissimo 80

Summary of Kuomintang Views 81

Adjournment of the Conference 82

The Generalissimo’s Statement of March 1, 1945 . . 83

The Communist Party’s Reply, March 9, 1945 ... 84

III. The Problem of Military Assistance 86

Ambassador Hurley’s Recommendation against Amer-
ican Aid to the Chinese Communists 86

The American Charge’s Recommendations 87

IV. China and the Soviet Union 92

Agenda for Dr. Soong’s Moscow Conversations ... 92

Ambassador Hurley’s Interview with Marshal Stalin,

April 15, 1945 94

Comments on Ambassador Hurley’s Report .... 96

Ambassador Hurley’s Review of Sovdet-Chinese

Communist Relations 99

V. Further Government-Communist Negotiations .... 100

Sixth Kuomintang Congress, May 1945 100

The Committee of Seven 102

Ambassador Hurley's Departure 105

Continuing Negotiations at Chungking 107

Clashes between Communist and National Troops . . 110

Postponement of the Political Consultative Con-
ference no

VT. The Resignation of Ambassador Hurley 112

XXII

CONTENTS

CHAPTER IV

The Yalta Agreement and the Sino-Soviet Treaty of 1945

Page

I. The Yalta Agreement, February 11, 1945 113

Text of the Agreement 113

Discussions at Yalta 114

Soviet Views on the Agreement 115

II. The Sino-Soviet Treaty of Friendship and Alliance, Au-
gust 14, 1945 116

Negotiation of the Treaty 116

Assurances on the Open Door 118

Chinese Reaction to the Treaty 120

United States Reaction to the Treaty 121

Soviet Attitude Toward Manchurian Industries ... 123

Discussions at the Moscow Conference, 1945 .... 124

American Protests on Dairen 125

Conclusion 126

CHAPTER V

The Mission of General George C. Marshall , 1945-194-7

I. The Economic, Military and Political Setting 127

Introduction 127

General Economic Situation Immediately afber V-J

Day 127

China’s Financial Position 129

Unfavorable Elements 130

General Wedemeyer’s Reports 131

General Marshall’s Appointment and Instructions . . 132

The President’s Policy Statement of December 15,

1945 133

The Beginning of the Marshall Mission 133

Recapitulation of Chinese Political Background for the

Mission 134

II. The Agreements of January and February 1946 .... 136

The Cease-Fire Agreement of January 10, 1946 . . . 136

The Political Consultative Conference 138

The PCC Resolutions 139

The Military Reorganization Agreement of February

25, 1946 140

Chinese Public Reaction 143

Kuomintang Action on the PCC Resolutions .... 144

General Marshall’s Recall for Consultation 145

CONTENTS

XXIII

Page

III. The Manchurian Crisis 145

Field Teams for Manchuria 145

Chinese Communist Occupation of Changchun . . . 149

General Marshall’s Appraisal of the Situation ... 150

General Marshall’s Temporary Withdrawal from

Mediation 152

Suggested Compromise Solution 153

National Government Capture of Changchun .... 155

Generalissimo Chiang’s Proposals of May 24, 1946 . 156

Arrangements for a Truce 158

Negotiations during the Truce Period 159

Cessation of Hostilities in Manchuria 162

Revision of the Military Reorganization Agreement

and Related Political Problems 162

General Marshall’s Draft Agreement on the Army

Reorganization Plan 166

Disintegration of the Truce Arrangement 170

IV. The Appointment of J. Leighton Stuart as Ambassa-

dor to China 173

V. Organization of the State Council 174

Proposal for a Five-Man Committee 174

The Marshall-Stuart Statement of August 10, 1946 . 175

Generalissimo Chiang Kai-shek’s Position 177

Major Factors of Disagreement 177

VI. The Truman-Chiang Messages of August 1946 .... 179

President Truman’s Message of August 10 179

Generalissimo Chiang’s Reply of August 28 179

President Truman’s Message of August 31 179

VII. The Drift toward All-Out Strife 180

Communist Resentment of American Aid to China . 180

Problems Relating to the Five-Man Committee . . . 181

Neither Side Yields Measurably 184

National Government Military Activities 188

Further Deterioration in the Negotiations 188

General Marshall Considers Withdrawing 189

The Kalgan Truce Proposal 193

The Marshall-Stuart Statement of October 8, 1946 . . 194

The Communist Position 194

Generalissimo Chiang’s Statement of October 10, 1946 . 196

The Fall of Kalgan and the Summoning of the National

Assembly 196

Draft Statement Prepared for the Generalissimo . . . 197

XXIV

CONTENTS

VII. The Drift toward All-Out Strife — Continued

Eight-Point Proposal by the Generalissimo, October

16, 1946 198

The Communist Reply 199

The Spreading of Hostilities 200

Attempt at Mediation by the Third Party Group . . 201

Generalissimo Chiang's Statement of November 8,

1946 204

Cease-Fire Order by the National Government . . . 206

Convening of the National Assembly, November 15,

1946 207

The End of American Mediation 208

General Marshall's Views on the Situation in China . . 211

The Work of the National Assembly 214

The Communist Party's Reaction 215

VIII. The End of the Marshall Mission 217

General Marshall's Refusal to Continue as Mediator . 217

General Marshall's Recall and Final Statement ... 217

President Truman's Statement of December 18, 1946 . 218

American Withdrawal from the Committee of Three

and Executive Headquarters 219

Conclusion 219

IX. Economic Developments During the Marshall Mission . 220

Effects of Internal Conflict 220

Developments in China's Foreign Exchange and Trade

Policies 222

Effects of Restrictions on Trade and Shipping . . . 223

Economic Treaty Relations 223

Foreign Aid in 1946 225

CHAPTER VI

The Ambassadorship oj John Leighton Stuart , 19^7-19/^9

I. The Political and Military Situation 230

Further Efforts at Negotiation 230

Reversal of Communist Policy 232

The Soviet Proposal of March 10, 1947 233

Reorganization of the Legislative Yuan and the Con-
trol Yuan, March 1, 1947 233

Ambassador Stuart's Summary of Developments . . . 235

The Capture of Yenan 237

Student Demonstrations 238

Continued Deterioration of the Government's

Position 240

' CONTENTS XXV

Page

II. American Efforts to Encourage Reforms by the Chinese

Government 242

Ambassador Stuart’s Reports 242

Reorganization of the Executive Yuan and State

Council, April 17, 1947 244

The Political Situation in Manchuria 247

Chinese Moves toward Reform 249

The Communists Proclaimed to Be in Open Rebellion,

July 4, 1947 251

Secretary Marshall’s Message of July 6, 1947 .... 251

Ambassador Stuart’s Observations on North China

and Manchuria 252

III. The Wedemeyer Mission 255

Introduction 255

General Wedemeyer’s Instructions 255

Chinese Reaction to the Appointment 256

General Wedemeyer’s Statements of August 22 and

24, 1947 256

Chinese Reaction to General Wedemeyer’s State-
ments 258

Recommendations of the Wedemeyer Report .... 260

IY. Internal Developments in China 261

Fourth Plenary Session of the Kuomintang Central

Executive Committee 261

Ambassador Stuart’s Report of September 29, 1947 . . 263

Outlawing of the Democratic League, October 28,

1947 265

Possibility of Resumption of Peace Negotiations . . . 265

Elections to the National Assembly 268

Disturbances in Shanghai 269

V. Redefinition of American Policy 269

Considerations Underlying the Formulation of a Pro-
gram of Aid to China 269

Secretary Marshall’s Press Conference of March 10,

1948 • . . . 271

President Truman’s Press Conference of March 11,

1948 272

VI. Changes in the Chinese Government 273

Election of President Chiang and Vice President

Li Tsung-jen 273

The Search for a New Executive Yuan 274

Student Riots 277

Economic Reform Decrees of August 19, 1948 .... 278

XXVI

CONTENTS

Page

VII. Alternatives of American Policy 279

Secretary Marshall’s Policy Directives of August 12

and 13, 1948 279

Policy Review of October 1948 280

Chinese Requests for Further Military Assistance . . 286

VIII. Chinese Developments in 1949 288

President Chiang’s New Year’s Message 288

Prime Minister Sun Fo’s New Year’s Message . . . 290

Chinese Request for Foreign Mediation 290

The Retirement of the Generalissimo 292

The Position and Policies of Acting President Li . . 293

IX. Renewed Consideration of Additional American Aid . . 299

Recommendation from Tientsin 299

Comments by the Embassy Office at Canton . . . 300

Difficulties Confronting Acting President Li ... . 301

X. The Withdrawal of the Government from Nanking . . 304

The Communist Demands of April 15, 1949 .... 304

The Crossing of the Yangtze 305

XI. Formosa 307

CHAPTER VII

The Military Picture , 1945-1949

I. Military Operations 311

Operations in 1945 311

Operations in 1946 313

Operations in 1947 315

Operations in 1948 and 1949 318

II. American Operational Advice to the Chinese 323

Directives to General Barr on Advisory Activities . 323

General Barr’s Report 325

III. American Advisory Groups in China 338

Legislation and Agreements 338

The Joint Advisory Staff 340

The Naval Advisory Division 341

The Air Advisory Division 342

The Combined Service Forces Advisory Division . . 344

The Ground Forces Advisory Division 345

Comparison of Aid to China with Aid to Greece 351

CONTENTS

XXVII

IV. Military Materiel and Services Provided the Chinese

Government Since V-J Day

Summary

Secretary Marshall's Testimony on the 1946 Em-
bargo

American Equipment Captured by the Chinese Com-
munists

Adequacy of the Government's Military Supplies . .

CHAPTER VIII

The Program of American Economic Aid, 1947 -1949

I. The Economic Situation in 1947

Internal Economic Factors

Chinese Requests for American Aid

Consideration of Export-Import Bank Credits ....

Proposals for a Silver Loan

The Mounting Economic Crisis in China

II. Preparation in the United States of the China Aid Pro-
gram

Introduction

Secretary Marshall's Recommendations to Congress .
Premier Chang Chun's Request of November 17,

1947

The Chinese Request of November 21 and 24, 1947 . .

Ambassador Stuart's Comments

“Some Fundamental Considerations on American Aid

to China"

Washington Discussions with Chinese Representa-
tives

Premier Chang Chun's Statement of January 28,

1948

Presentation of the China Aid Program to Congress . .

III. The China Aid Act of 1948

IV. Implementation of the China Economic Aid Program . .

Initiation of the Program .

Undertakings by the Chinese Government

Specific Economic Measures Recommended to China .

Progress of the Economic Aid Program

Continuation of Economic Aid Beyond April 3, 1949 .
The Appraisal of Acting President Li

Page

354

354

354

357

358

360

360

361
364
367
369

371

371

371

372

373

375

376

377

378

379
387
390

390

391
394
398
404
409

LIST OF ANNEXES

CHAPTER I

A Century of American Policy , 1844-1 948

Page

1. Treaty Between the United States and China, July 3, 1844, Article II . 413

2. Treaty Between the United States and China, June 18, 1858, Article

XXX 413

3. Treaty Between the United States and China, July 28, 1868, Article

VI 414

4. The Open Door Notes: September 6, 1899; March 20, 1900 414

5. Secretary Hay to Certain American Diplomatic Representatives, July

3, 1900 416

6. Treaty Between the United States and China, October 8, 1903 .... 417

7. Secretary Hay to Certain American Diplomatic Representatives, Feb-

ruary 10, 1904 426

8. Secretary Hay to Certain American Diplomatic Representatives, Jan-

uary 13, 1905 426

9. Root-Takahira Agreement, November 30, 1908 427

10. Memorandum by Secretary Knox on Neutralization of the Manchurian

Railways, November 6, 1909 428

11. Secretary Bryan to the Japanese Ambassador, March 13, 1915 .... 430

12. Secretary Bryan to the Ambassador in Japan, May 11, 1915 436

13. Lansing-Ishii Agreement, November 2, 1917 437

14. Treaty Between the United States and Other Powers, February 6, 1922. 438

15. Statement by Secretary Kellogg, January 27, 1927 442

16. Treaty Between the United States and China, July 25, 1928 445

17. Secretary Stimson to the Ambassador in Japan, January 7, 1932 . . . 446

18. Secretary Stimson to the Chairman of the Senate Committee on Foreign

Relations, February 23, 1932 447

19. Statement by Secretary Hull, December 5, 1935 450

20. Press Release Issued by the Department of State, October 6, 1937 . . . 451

21. The Ambassador in Japan to the Japanese Piime Minister and Foreign

Minister, October 6, 1938 452

22. The Japanese Foreign Minister to the Ambassador in Japan, November

18, 1938 456

23. The Ambassador in Japan to the Japanese Foreign Minister, December

30, 1938 459

24. Statement by Secretary Hull, March 30, 1940 463

25. Document Handed by Secretary Hull to the Japanese Ambassador,

November 26, 1941 464

26. Master Lend-Lease Agreement Between the United States and China,

June 2, 1942 466

27. (a) Secretary of War Stimson to the Chinese Minister for Foreign

Affairs, January 29, 1942 468

(b) The Chinese Minister for Foreign Affairs to Secretary of War

Stimson, January 30, 1942 469

XXVIII

LIST OF ANNEXES

XXIX

Page

28. Five Hundred Million Dollar Financial Aid of 1942 and Other War-

time Financial Relationships (28(a)-28(ii)) 470

29. (a) President Roosevelt to Generalissimo Chiang Kai-shek, February

7, 1942 510

(b) Joint Statement by Secretary of the Treasury Morgenthau and
Dr. T. V. Soong, Chinese Minister for Foreign Affairs, March 21,

1942 510

30. Statement by Acting Secretary Welles, July 19, 1940 512

31. Secretary Hull to the Appointed Chinese Minister for Foreign Affairs,

May 31, 1941 513

32. Treaty Between the United States and China, January 11, 1943 . . . 514

33. Statement on Conference of President Roosevelt, Generalissimo Chiang

Kai-shek, and Prime Minister Churchill, Cairo, December 1, 1943 . 519

CHAPTER II

A Review of Kuomintang-Chinese Communist Relations t 1921-1944

34. Manifesto on the Seizure of Generalissimo Chiang Kai-shek, December

12, 1936 521

35. The Central Committee of the Chinese Communist Party to the Third

Plenary Session of the Fifth Central Executive Committee of the
Kuomintang, February 10, 1937 522

36. Manifesto on Unity by the Central Committee of the Chinese Com-

munist Party, September 22, 1937 523

37. Statement by Generalissimo Chiang Kai-shek, September 23, 1937 . . 524

38. Message of Generalissimo Chiang Kai-shek to the People’s Political

Council, March 6, 1941 526

39. Statement by Generalissimo Chiang Kai-shek, September 13, 1943 . . 530

40. Report by the Representative of the National Government to the

People’s Political Council, September 15, 1944 531

41. Report by the Representative of the Central Committee of the Chinese

Communist Party to the People’s Political Council, September 15,

1944 544

42. Statement by the Chinese Minister of Information, September 20,

1944 549

43. Summary Notes of Conversations Between Vice President Henry A.

Wallace and President Chiang Kai-shek, June, 1944 549

44. President Roosevelt to President Chiang Kai-shek, July 14, 1944 . . 560

chapter m

The Ambassadorship of Major General Patrick J . Hurley , 1944-1945

45. The Ambassador in China to Secretary Hull, August 31, 1944 .... 561

46. Secretary Hull to the Ambassador in China, September 9, 1944 . . . 563

47. Memoranda by Foreign Service Officers in China, 1943-1945 .... 564

48. (a) The Vice Chairman of the Central Committee of the Chinese

Communist Party to the Ambassador in China, February 18,

1945 576

(b) The Ambassador in China to the Vice Chairman of the Central
Committee of the Chinese Communist Party, February 20,

1945 577

XXX

LIST OF ANNEXES

Page

49. Summary of Conversations between Representatives of the National

Government and of the Chinese Communist Party, October 11,

1945 577

50. The Ambassador to China to President Truman, November 26, 1945 . 581

CHAPTER IV

The Yalta Agreement and the Sino-Soviet Treaty of 1945

51. Treaty of Friendship and Alliance Between China and the U.S.S.R.,

August 14, 1945 585

52. Exchange of Notes Relating to the Treaty of Friendship and Alliance,

August 14, 1945 587

53. Exchange of Notes on Outer Mongolia, August 14, 1945 588

54. Agreement Between China and the U.S.S.R. Concerning Dairen . . . 589

55. Protocol to the Agreement on Dairen 589

56. Agreement Between China and the U.S.S.R. on Port Arthur, August 14,

1945 590

57. Appendix to Agreement on Port Arthur, August 14, 1945 591

58. Agreement Between China and the U.S.S.R. on Relations Between the

Chinese Administration and Commander-in-Chief of Soviet Forces
after Entry into the “Three Eastern Provinces” 592

59. Agreement Between China and the U.S.S.R. on the Chinese Changchun

Railway, August 14, 1945 593

60. Red Army “War Booty” Removals from Manchuria (60(a)-60(c)) . . 596

chapter v

The Mission of General George C. Marshall , 19 45-19 47

61. President Truman to the Special Representative of the President,

December 15, 1945 605

62. Statement by President Truman on United States Policy toward China,

December 15, 1945 607

63. Press Release on Order for Cessation of Hostilities, January 10, 1946 . 609

64. Resolution on Government Organization Adopted by the Political Con-

sultative Conference, January, 1946 610

65. Resolution on Program for Peaceful National Reconstruction Adopted

by the Political Consultative Conference, January, 1946 612

66. Resolution on Military Problems Adopted by the Political Consultative

Conference, January 1946 617

67. Agreement on the National Assembly by Sub-Committee of the Polit-

ical Consultative Conference 619

68. Resolution on the Draft 1936 Constitution Adopted by the Political

Consultative Conference, January, 1946 619

69. Press Release by Military Sub-Committee Concerning Agreement on

Military Reorganization, February 25, 1946 622

70. Memorandum by the Military Sub-Committee, March 16, 1946 . . . 626

71. (a) Agreement on Establishment of the Executive Headquarters,

January 10, 1946 627

(b) The Committee of Three to Generalissimo Chiang Kai-shek,

January 10, 1946 629

(c) Memorandum on Operations of the Executive Headquarters . . . 629

(d) Memorandum Concerning Repatriation of Japanese 632

LIST OF ANNEXES

XXXI

72. Ratification by Central Executive Committee of the Kuomintang of

Resolutions Adopted by Political Consultative Conference, March
16, 1946

73. Memorandum by the Chairman of the Committee of Three, January

24, 1946

74. The Committee of Three to the Executive Headquarters, March 27,

1946

75. The Committee of Three to the Three Commissioners of Executive

Headquarters, May 14, 1946

76. (a) Statement by Generalissimo Chiang Kai-shek, June 6, 1946 . . .
(b) Statement by Vice Chairman of the Central Committee of the

Chinese Communist Party, June 6, 1946

77. Directive by the Committee of Three for Reopening Comimmication

Lines in North and Central China, June, 1946

78. Agreement by the Committee of Three, June 24, 1946

79. The Committee of Three to the Three Commissioners of Executive

Headquarters [June 26?] 1946

80. Preliminary Agreement Proposed by the Chairman of the Committee

of Three, June, 1946

81. Manchuria Annex to Preliminary Agreement Proposed by Chairman

of the Committee of Three, June, 1946

82. Radio Message by Generalissimo Chiang Kai-shek, July 1, 1946 . .

83. Joint Statement by Mao Tse-tung and General Chu Teh, July 1,

1946

84. Joint Statement by the Special Representative of the President and

the Ambassador in China, August 10, 1946

85. Statement by President Chiang Kai-shek, August 13, 1946

86. President Truman to President Chiang Kai-shek, August 10, 1946 . . .

87. The Chinese Ambassador to President Truman, August 28, 1946. . .

88. President Truman to President Chiang Kai-shek, August 31, 1946 . . .

89. The Head of the Chinese Communist Party Delegation to the Special

Representative of the President, September 15, 1946

90. The Head of the Chinese Communist Party Delegation to the Special

Representative of the President, September 16, 1946

91. The Special Representative of the President to the Head of the

Chinese Communist Party Delegation, September 19, 1946 ....

92. The Head of the Chinese Communist Party Delegation to the Special

Representative of the President, September 21, 1946

93. The Special Representative of the President and the Ambassador in

China to the Head of the Chinese Communist Party Delegation,
September 26, 1946

94. The Head of the Chinese Communist Party Delegation to the Special

Representative of the President and the Ambassador in China,
September 27, 1946

95. Draft of Statement for Generalissimo Chiang Kai-shek, September

1946

96. The Head of the Chinese Communist Party Delegation to the Special

Representative of the President, September 30, 1946

97. The Special Representative of the President to President Chiang Kai-shek,

October 1, 1946.

Page

634

639

640

640

641

642

642

644

644

645

646

647

648

648

649
652

653

654

654

656

657
657

659

659

660
661

662

XXXII

LIST OF ANNEXES

Page

98. President Chiang Kai-shek to the Special Representative of the Presi-

dent, October 2, 1946 663

99. The Special Representative of the President to the Ambassador in

China, October 6, 1946 664

100. Statement by the Chinese Communist Party, October 8, 1946 . . . 665

101. Joint Statement by the Special Representative of the President and

the Ambassador in China, October 8, 1946 665

102. The Head of the Chinese Communist Party Delegation to the Special

Representative of the President, October 9, 1946 667

103. Address Delivered by President Chiang Kai-shek at Nanking, October

10, 1946 669

104. Draft of Statement for Generalissimo Chiang Kai-shek, October 14,

1946 673

105. Statement by Generalissimo Chiang Kai-shek, October 16, 1946 . . 674

106. Proposals by the Third Party Group, October, 1946 675

107. Draft of Statement for Generalissimo Chiang Kai-shek, November 7,

1946 676

108. Statement by Generalissimo Chiang Kai-shek, November 8, 1946 . . 677

109. The Head of the Chinese Communist Party Delegation to the Special

Representative of the President, November 8, 1946 678

110. Address Delivered by President Chiang Kai-shek at Nanking, Novem-

ber 15, 1946 679

111. Statement by the Head of the Chinese Communist Party Delegation,

November 16, 1946 683

112. The Representative of the Chinese Communist Party to the Special

Representative of the President, December 4, 1946 685

113. Personal Statement by the Special Representative of the President,

January 7, 1947 686

114. Statement by President Truman on United States Policy Toward

China, December 18, 1946 689

115. Press Release Issued by the Department of State, January 29, 1947 . 695

CHAPTER VI

The Ambassadorship of John Leighton Stuart , 19^7-19^9

116. (a) Statement Issued by the Ministry of Information, Chinese

National Government, January 20, 1947 697

(b) Statement by the Chief of the Department of Information, Cen-

tral Committee, Chinese Communist Party, January 29, 1947 . 699

(c) Statement Issued by the Ministry of Information, Chinese

National Government, January 29, 1947 703

(d) Statement by Generalissimo Chiang Kai-shek, February 16, 1947 . 704

117. Radio Speech by the Vice Chairman of the Central Committee of the

Chinese Communist Party, January 10, 1947 706

118. Memorandum by the Chief of the Department of Information, Cen-

tral Committee, Chinese Communist Party, Concerning Postwar
International Situation, January, 1947 710

119. Statement of the Central Committee of the Chinese Communist

Party, February 1, 1947 719

120. Article by the Chairman of the Central Committee of the Chinese

Communist Party Commemorating 28th Anniversary of the Party,

June 30, 1949 720

LIST OF ANNEXES

XXXIII

Page

121. The Ambassador in China to Secretary Marshall, May 20, 1947 . . 729

122. The Ambassador in China to Secretary Marshall, June 4, 1947 . . 731

123. The Ambassador in China to Secretary Marshall, May 30, 1947 . . 732

124. The Ambassador in China to Secretary Marshall, July 1, 1947 . . . 732

125. The Ambassador in China to Secretary Marshall, April 5, 1947 . . 735

126. Summary of Manifesto Issued by Central Executive Committee of

the Kuomintang, March 24, 1947 • 737

127. (a) Statement by President ‘ Chiang Kai-shek announcing Reorgan-

ization of the State Council, April 18, 1947 739

(b) Text of the Political Program of the National Government of

China, April 17, 1947 740

(c) Statement by the Minister of Information, Chinese National

Government, April 23, 1947 741

(d) Inaugural Radio Speech by the President of the Executive Yuan,

April 23, 1947 742

128. The Ambassador in China to Secretary Marshall, April 19, 1947 . . 744

129. The Ambassador in China to Secretary Marshall, July 5, 1947 . . . 746

130. Central News Agency Bulletin of July 5, 1947, Concerning Declara-

tion by President of the Executive Yuan on Restoration of National
Unity 748

131. Radio Broadcast by President Chiang Kai-shek, July 7, 1947 ... 749

132. The Ambassador in China to Secretary Marshall, July 21, 1947 . . 756

133. Summary of Remarks Made by Lieutenant General Albert C. Wede-

meyer Before a Joint Meeting of the State Council and All Ministers
of the National Government, August 22, 1947 758

134. Statement by Lieutenant General Albert C. Wedemeyer on Conclusion

of Mission in China, August 24, 1947 763

135. Report to President Truman by Lieutenant General Albert C. Wede-

meyer, September 19, 1947 764

136. The Consul General at Shanghai to Secretary Marshall, September 2,

1947 815

137. The Ambassador in China to Secretary Marshall, August 30, 1947 . 816

138. Memorandum from the Chinese Government to Lieutenant General

Albert C. Wedemeyer, September 6, 1947 817

139. The Ambassador in China to Secretary Marshall, August 11, 1947 . 822

140. The Ambassador in China to Secretary Marshall, August 19, 1947 . 823

141. The Ambassador in China to Secretary Marshall, August 26, 1947 . 824

142. The Ambassador in China to Secretary Marshall, September 17, 1947 . 826

143. The Ambassador in China to Secretary Marshall, September 20,

1947 828

144. The Ambassador in China to Secretary Marshall, September 20,

1947 830

145. The Ambassador in China to Secretary Marshall, October 29, 1947 . 832

146. Article Published in Central News Agency Bulletin, October 28, 1947 . 834

147. Announcement by the China Democratic League, November 6, 1947 . 834

148. The Ambassador in China to Secretary Marshall, November 5, 1947 . 836

149. The Ambassador in China to Secretary Marshall, January 9, 1948 . . 840

150. (a) The Ambassador in China to Secretary Marshall, February 5,

1948 841

(b) The Ambassador in China to Secretary Marshall, February 6,

1948 843

844538 — 49 3

XXXIV

LIST OF ANNEXES

Page

151. (a) The Ambassador in China to Secretary Marshall, March 17,

1948 844

(b) The Ambassador in China to Secretary Marshall, March 31,

1948 845

152. (a) The Ambassador in China to Secretary Marshall, April 2, 1948 . 846

(b) Speech by Generalissimo Chiang Kai-shek Before the Central

Executive Committee of the Kuomintang, April 4, 1948 . . . 847

(c) The Ambassador in China to Secretary Marshall, April 5, 1948 . 849

(d) The Ambassador in China to Secretary Marshall, April 6, 1948 . 849

(e) The Ambassador in China to Secretary Marshall, April 19,

1948 850

(f) The Ambassador in China to Secretary Marshall, April 23,

1948 851

(g) The Ambassador in China to Secretary Marshall, April 23,

1948 851

(h) The Ambassador in China to Secretary Marshall, April 25,

1948 852

(i) The Ambassador in China to Secretary Marshall, April 26,

1948 853

(j) The Ambassador in China to Secretary Marshall, April 27,

1948 854

(k) The Consul General at Shanghai to Secretary Marshall, April 27,

1948 855

(l) The Ambassador in China to Secretary Marshall, April 29,

1948 . 856

(m) The Ambassador in China to Secretary Marshall, May 3, 1948 . 857

(n) Editorial from the New China News Agency, May 24, 30,

1948 859

153. (a) The Ambassador in China to Secretary Marshall [May?]

1948 864

(b) The Ambassador in China to Secretary Marshall, May 19,

1948 865

(c) The Ambassador in China to Secretary Marshall, May 22,

1948 866

(d) The Ambassador in China to Secretary Marshall, May 24,

1948 867

(e) The Ambassador in China to Secretary Marshall, June 23,

1948 868

154. The Ambassador in China to Secretary Marshall, June 5, 1948 . . . 869

155. The Ambassador in China to Secretary Marshall, August 20, 1948 . 871

156. (a) The Consul at Shanghai to Secretary Marshall, June 24,

1948 872

(b) The Ambassador in China to Secretary Marshall, July 6,

1948 872

(c) The Consul General at Tientsin to Secretary Marshall, July 14,

1948 874

(d) The Ambassador in China to Secretary Marshall, July 17, 1948 . 875

LIST OF ANNEXES

XXXV

Page

157. (a) The Ambassador in China to Secretary Marshall, August 23,

1948 877

(b) Secretary Marshall to the Chinese Minister for Foreign Affairs,

August 28, 1948 878

(c) The Ambassador in China to Secretary Marshall, October 15,

1948 879

158. The Consul General at Shanghai to Secretary Marshall, November 2,

1948 880

159. Editorial from the “Chung Yang Jih Pao,” November 4, 1948 . . . 880

160. The Ambassador in China to Secretary Marshall, November 1, 1948 . 882

161. The Ambassador in China to Secretary Marshall, August 10, 1948 . . 885

162. (a) Secretary Marshall to Under Secretary Lovett, Paris, November

6, 1948 887

(b) Secretary Marshall to Under Secretary Lovett, Paris, November

8, 1948 887

163. President Chiang Kai-shek to President Truman, November 9, 1948 . 888

164. President Truman to President Chiang Kai-shek, November 12, 1948. 889

165. (a) The Ambassador in China to Secretary Marshall, November 5,

1948 890

(b) The Ambassador in China to Secretary Marshall, November 6,

1948 894

(c) The Consul General at Shanghai to Secretary Marshall, Novem-

ber 29, 1948 894

(d) The Ambassador in China to Secretary Marshall, December 16,

1948 895

(e) The Ambassador in China to Secretary Marshall, December 19,

1948 896

(f) The Ambassador in China to Secretary Marshall, December 21,

1948 897

(g) The Ambassador in China to Secretary Marshall, December 29,

1948 899

(h) The Ambassador in China to Secretary Marshall, December 30,

1948 900

166. A Series of Chronicle Summaries by the American Embassy in

Nanking to the Department of State during 1948 901

167. New Year Message, 1949, of President Chiang Kai-shek 920

168. The Chinese Minister for Foreign Affairs to the Ambassador in China,

January 8, 1949 922

169. Memorandum on the Situation in Taiwan, April 18, 1947 923

CHAPTER VII

The Military Picture , 1945-1949

170. Oral Statement by President Truman to Dr. T. V. Soong Concerning

Assistance to China, September 14, 1945 939

171. Study of American Military Mat4riel and Services Provided to the

Chinese National Government since V-J Day (September 2, 1945) . 940

172. Categories of American Military Aid Extended to China Since V-J

Day (September 2, 1945) 969

XXXVI

LIST OF ANNEXES

Page

173. Transfer and Sale of Ammunition and Materiel to the Chinese Na-

tional Government During 1947 and 1948 974

174. Statement Submitted by Brigadier General T. S. Timberman to the

Committee on Foreign Affairs of the House of Representatives, June
21, 1949 975

CHAPTER VIII

The Program of American Economic Aid , 1947-1949

175. (a) Message from President Truman on Aid to China, February 18,

1948 981

(b) Statement by Secretary Marshall Regarding the China Aid Pro-
gram, February 20, 1948 983

176. Statement Issued by the Ambassador in China, February 20, 1948 . 985

177. Statement by the Department of State, the Department of the Treas-

ury, and the Federal Reserve Board on Possible Use of Silver for
Monetary Stabilization in China in Connection With China Aid Pro-
gram [February 1948] 987

178. (a) Secretary Marshall to the Ambassador in China, January 12,

1948 989

(b) Secretary Marshall to the Ambassador in China, May 7, 1948 . . 990

179. Text of China Aid Act of 1948, April 3, 1948 991

180. The Ambassador in China to Secretary Marshall, May 10, 1948 . . . 993

181. Text of Economic Aid Agreement Between the United States and

China, July 3, 1948 994

182. Informal Memorandum Regarding Basic Reforms, Handed by Am-

bassador Stuart to President Chiang Kai-shek, May 22, 1948 . . . 1001

183. Exchange of Notes Between the United States and China Providing

for Establishment of a Sino-American Joint Commission on Rural
Reconstruction, August 5, 1948 1004

184. Economic Aid to China Under the China Aid Act of 1948, February

1949 1006

185. Summary of United States Government Economic, Financial, and

Military Aid to China Since 1937, Issued March 21, 1949 .... 1042

186. Secretary Acheson to Senator Tom Connally, Chairman of the Senate

Committee on Foreign Relations, March 15, 1949 1053

Chronology of Principal Events Affecting
Sino-American Relations

1844
July 3

Treaty of Wanghia, first Sino-U.S. treaty (Cushing Treaty)

1858
June 18

Treaty of Tientsin (Reed Treaty)

1868
July 28

Treaty of Washington (Burlingame Treaty)

1899

Sept.- Mar.
1900

Secretary Hay’s Open Door notes

1900
July 3

U.S. policy on preservation of Chinese territorial and admin-
istrative entity announced

1903
Oct. 8

Sino-U.S. Commercial Treaty signed at Shanghai

1905
Sept. 5

Treaty of Portsmouth, ending Russo-Japanese War

1908
Nov. 30

Root-Takahira Agreement

1909

Nov.-Dee.

Knox “neutralization” of Manchurian railways proposal

1911
Oct. 10

Start of Chinese Revolution

1912
Feb. 12

Abdication of Manchu dynasty and establishment of Chinese
Republic

1915
Mar. 13

Secretary Bryan’s statement of opposition to Japanese
Twenty-One Demands on China

May 11

Secretary Bryan’s statement of nonrecognition of Sino-
Japanese agreements impairing American treaty rights in
China

1917
Aug. 14
Nov. 2

Chinese declaration of war against Germany
Lansing-Ishii Agreement

XXXVII

XXXVIII

CHRONOLOGY OF PRINCIPAL EVENTS

1921

May

Foundation meeting of Chinese Communist Party held at
Shanghai

1922
Feb. 6

Nine-Power Treaty signed at Washington Conference

1927
Jan. 27

Secretary Kellogg’s statement expressing sympathy with
Chinese nationalism and U.S. policy of noninterference in
Chinese internal affairs

Apr.-July

Development of Kuomintang-Communist breach

1928
June 8
July 6

Peking taken by Nationalist forces led by Yen Hsi-shan
Unification of China under Kuomintang announced by Chiang
Kai-shek

July 25

U.S. recognition of the National Government of the Republic
of China

1931
Sept. 18

Beginning of Japanese conquest of Manchuria

1932
Jan. 7

Secretary Stimson’s announcement of policy of nonrecogni-
tion of territorial changes brought about by force

Feb. 23

Secretary Stimson’s letter to Senator Borah outlining U.S.
policy in the Sino-Japanese dispute

1934
Apr. 29
July 7

U.S., in note to Japan, reasserted its treaty rights in China
U.S. protest to Japan regarding the creation of a petroleum
monopoly in Manchuria

1936
May 5
Dec. 12

Draft Chinese Constitution promulgated

Generalissimo Chiang Kai-shek “arrested” by Chang Hsueh-

Dec. 25

liang at Sian, Shensi

Generalissimo Chiang released from Sian “captivity”

1937
July 7
Sept. 22

Start of Japan’s undeclared war on China
Manifesto of Central Committee of Communist Party re-
garding formation of “united front” with Kuomintang

Sept. 23

Statement by Generalissimo Chiang Kai-shek welcoming
manifesto

Oct. 5
Nov. 3-24

President Roosevelt’s “quarantine” speech in Chicago
Brussels Conference convened in virtue of article VII of
Nine-Power Treaty of 1922

1938
Oct. 6

U.S. protest regarding Japanese nonobservance of the Open
Door in China

1939
July 26

U.S. gave notice of termination of Japan-U.S. Commercial
Treaty of Feb. 21, 1911

CHRONOLOGY OF PRINCIPAL EVENTS

xxxrx

1940
Mar. 30

1941
May 6

July 26
Dec. 7
Dec. 8

U.S. denounced setting up of Wang Ching-wei regime in
Nanking

China declared eligible by President Roosevelt for lend-lease
assistance

United States froze Japanese assets in United States
Japanese attack upon Pearl Harbor
U.S. declaration of war against Japan

1942

Jan. 29-30

Feb. 2

Feb. 7
Mar. 6

Soong-Stimson exchange of notes regarding appointment of
General Stilwell as Chief of Staff of Generalissimo Chiang’s
Joint Staff, and United States Army Representative in
China

Letter orders issued by General Marshall ordering General
Stilwell to Chungking to serve under Supreme Command
of Generalissimo Chiang
U.S. loan to China of $500,000,000 authorized
General Stilwell reported to Generalissimo Chiang

1943
Jan. 11

Oct. 30

Nov. 22-26
Nov. 28-
Dec. 1
Dec. 1
Dec. 17

1944
June
Aug. 18

Aug. 31
Oct. 24

1945
Jan. 8

Feb. 4^11
Feb. 11
Apr. 15

May 8
July 17-
Aug. 1
July 26

Aug. 9
Aug. 14

Sino-U.S. treaty providing for relinquishment of American
extraterritoriality signed at Washington
Declaration of Four Nations on General Security signed by
U.K., U.S., U.S.S.R. and China at Moscow
Cairo Conference of Roosevelt, Churchill and Chiang Kai-shek
Tehran Conference of Roosevelt, Churchill and Stalin

Cairo Declaration issued by U.S., U.K. and China
Repeal by U.S. Congress of discriminatory legislation re-
garding Chinese immigration and naturalization

Vice President Henry A. Wallace’s mission to China
General Patrick J. Hurley appointed Personal Representative
of President Roosevelt to China
General Hurley’s conversation with Molotov in Moscow
Recall of General Stilwell from China announced

General Hurley presented credentials as American Ambassador
to China to Generalissimo Chiang Kai-shek
Yalta Conference of Roosevelt, Churchill and Stalin
Yalta Agreement signed by Roosevelt, Churchill and Stalin
Ambassador Hurley conferred with Stalin and Molotov at
Moscow regarding settlement of Kuomintang-Communist
question
V-E Day

Berlin Conference of U.S., U.K. and U.S.S.R.

Potsdam Declaration calling upon Japan to surrender un-
conditionally issued by U.S., U.K., and China
Soviet Union entered war against Japan
Surrender of Japan

XL

CHRONOLOGY OF PRINCIPAL EVENTS

1945
Aug. 14

Oct. 11

Nov. 27
Nov. 27

Dec. 15

Dec. 16-27

1946
Jan. 7
Jan. 10

Jan. 10-31
Jan. 13
Jan. 14
Jan. 31
Feb. 25

Mar. 1-17
Mar. 11
Apr. 18
Apr. 18
May 5
May 19
May 23
June 7
June 27
June 30
July 11

July 29
Aug. 10

Aug. 30
Oct. 11
Nov. 2

Nov. 15-
Dec. 25
Dec. 18

1947
Jan. 6
Jan. 7

Jan. 29

Sino-Soviet Treaty of Friendship and Alliance and related
agreements signed at Moscow

Summary of National Government-Communist conversations
issued

Resignation of Ambassador Hurley announced
Appointment of Gen. George C. Marshall as President
Truman’s Special Representative to China announced
Statement of United States policy on China issued by Presi-
dent Truman

Moscow Conference of Foreign Ministers of U.S., U.K., and
U.S.S.R.

First meeting of the Committee of Three
Committee of Three agreement regarding cessation of hos-
tilities

Meeting of the Political Consultative Conference
Effective date of the cessation-of-hostilities agreement
Executive Headquarters at Peiping began official functions
Resolutions adopted by Political Consultative Conference
Agreement reached on basic plan for military reorganization
and integration of Communist forces into the National
Army

Meeting of the Kuomintang Central Executive Committee
General Marshall left China for U.S. to report to the President
General Marshall returned to China
Occupation of Changchun by Chinese Communist forces
Transfer of National Government from Chungking to Nanking
Occupation of Ssupingchieh by National Government troops
Occupation of Changchun by National Government troops
Beginning of truce period in Manchuria

Joint China-U.S. Agricultural Mission commenced operations
Expiration of the truce; negotiations at an apparent stalemate
Senate confirmation of J. Leighton Stuart as American
Ambassador to China

Communist ambush of U.S. Marine convoy near Peiping
Joint statement on situation in China issued by General
Marshall and Ambassador Stuart
Conclusion of Sino-American surplus-property sale agreement
Occupation of Kalgan by National Government troops
Sino-U. S. Treaty of Friendship, Commerce and Navigation
signed at Nanking

Meeting of the National Assembly to adopt a Constitution

Statement by President Truman of American policy toward
China

General Marshall's recall announced

General Marshall’s nomination as Secretary of State an-
nounced

U. S. announced termination of its connection with the Com-
mittee of Three and Executive Headquarters

CHRONOLOGY OF PRINCIPAL EVENTS

XU

1947
Feb. 11

Feb. 28
Mar. 1

Mar. 19
Apr. 17

June 30

July 9

Aug. 24
Sept. 9

Sept. 19
Oct. 28

1948
Mar. 12
Mar. 29
Apr. 3
July 3

Aug. 5

Aug. 19
Sept. 23-24
Oct. 15
Oct. 20
Nov. 1
Dec. 1
Dec. 31

1949
Jan. 1

Jan. 8
Jan. 12
Jan. 15
Jan. 21

Jan. 31
Feb. 5
Mar. 12
Mar. 24
Apr. 14
Apr. 20
May 16-17
May 25
June 2
June 3

Chinese Government notified Communist delegation in Nan-
king that its presence was no longer desired
Uprising in Taiwan

Reorganization of the Legislative Yuan and the Control Yuan
announced

Occupation of Yenan by National Government troops
Reorganization of the Executive Yuan and the State Council
announced

Extraordinary meeting of the Standing Committee of the
Kuomintang Central Executive Committee
President Truman instructed General Wedemeyer to proceed
to China on a fact-finding mission
General Wedemeyer’ s statement on his departure from China
Fourth Plenary Session of the Kuomintang Central Executive
Committee opened

General Wedemeyer submitted his report to the President
The Democratic League outlawed

Occupation of Ssupingchieh by Chinese Communist forces
Meeting of the National Assembly
China Aid Act of 1948 approved by President Truman
Agreement signed covering terms of American economic aid
to China

Exchange of notes providing for establishment of Sino-Ameri-
can Joint Commission on Rural Reconstruction in China
Economic reform decrees issued by National Government
Occupation of Tsinan by Chinese Communist forces
Occupation of Chinchow by Chinese Communist forces
Occupation of Changchun by Chinese Communist forces
Occupation of Mukden by Chinese Communist forces
Occupation of Hsuchow by Chinese Communist forces
Formation of Sun Fo’s cabinet

New Year’s messages by Generalissimo Chiang Kai-shek and
Prime Minister Sun

Chinese request for Big Four mediation
U.S. declination to act as an intermediary
Occupation of Tientsin by Chinese Communist forces
Chiang Kai-shek announced his decision to retire; Li Tsung-
jen became Acting President
Occupation of Peiping by Chinese Communist forces
Most of the Chinese Government’s offices moved to Canton
Ho Ying-chin became Prime Minister in Canton
Occupation of Taiyuan by Chinese Communist forces
Extension of China Aid Act of 1948
Crossing of Yangtze River by Communist forces
Occupation of Hankow by Chinese Communist forces
Occupation of Shanghai by Chinese Communist forces
Occupation of Tsingtao by Chinese Communist forces
Yen Hsi-shan became Prime Minister in Canton

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CHAPTER I

A Century of American Policy, 1844^1943

I. INTRODUCTION

For more than half a century the policy of the United States toward
China has been based on the twin principles of (1) equality of com-
mercial opportunity, and (2) the maintenance of the territorial and
administrative integrity and political independence of China. Al-
though the United States has at times recognized the special relations
between China and neighboring countries, it has also recognized and
asserted that the domination of China by any one Power or any group
of Powers is contrary to the interests both of China and of the United
States. The United States has advocated a policy of noninterference
in the internal affairs of China. The United States has taken the posi-
tion that the Chinese people should be given time to develop those
political institutions which would best meet their needs in the modern
world. The United States has also sought to prevent third Powers
from utilizing disturbances within China as an opportunity for indi-
vidual or collective aggrandizement. The United States has long
been interested in the creation of conditions which would permit the
development of a stable Chinese political organism, and in its relations
with China has supported the principle of peaceful settlement of dis-
putes in accordance with the generally recognized precepts of inter-
national law.

II. DEVELOPMENT OF BASIC AMERICAN POLICY

EQUALITY OF COMMERCIAL OPPORTUNITY

During the nineteenth century United States policy .toward China
was expressed by treaties and ordinary diplomatic procedures designed
to secure equality of trading rights in China. The fundamental prin-
ciple underlying American relations with China — equality of com-
mercial opportunity — was incorporated in the first treaty between the
two Powers, the Treaty of Wanghia signed on July 3, 1844, in the

1

2

U. S. RELATIONS WITH CHINA

form of a most-favored-nation clause. 1 This provision guaranteed
that whatever treaty rights other Powers gained with respect to trade,
residence, religious activity, tariffs or other commercial regulations
would automatically accrue to the United States. The most-favored-
nation clause was retained in the subsequent commercial treaties nego-
tiated with China in the nineteenth century, namely the Treaty of
Tientsin of 1858 2 and the Burlingame Treaty of 1868. 3 The principle
of equality of commercial opportunity worked well until the late
1890’s, when new imperialistic pressures seemed to threaten a division
of China into spheres of interest among the other Great Powers.

ENUNCIATION OF THE OPEN DOOR POLICY

Under the circumstances the United States resorted to a new ap-
proach, using another formula to secure its objectives. The Open
Door notes of Secretary of State John Hay to the Powers during the
period from September to November 1899 gave concrete expression
to the principle of equality of opportunity. 4 Hay asked the Powers
involved in the struggle over China to give guarantees that in their
respective “spheres of influence or interest” they would not interfere
with the equality of rights of nationals of other countries in matters
of tariffs, railroad charges, and harbor dues. The replies to these
notes were somewhat equivocal or conditional, the Russian reply being
the most evasive of all. Nevertheless the diplomatic language of the
replies made it possible for Hay to announce to the world that the
policy of the Open Door had been accepted, and that it was the gov-
erning policy in China.

The anti-foreign disturbances in China in 1900, usually referred
to as the Boxer Rebellion, afforded the United States (which had
participated with the other Powers in a joint expeditionary force sent
to rescue the beleaguered legations in Peking) an opportunity to make
a statement of policy which went a step beyond the Open Door notes
of the preceding year. In a circular note to the participating Powers,
dated July 3, 1900, Hay declared that the “policy of the Government
of the United States is to seek a solution” of the difficulties in China
which would “preserve Chinese territorial and administrative entity”
and “safeguard for the world the principle of equal and impartial
trade with all* parts of the Chinese Empire.” 5 Thus the principle of
the maintenance of Chinese territorial and administrative entity be-

1 See annex 1.

* See annex 2.

* See annex 3.

4 See annex 4.

8 See annex 5.

A CENTURY OF AMERICAN POLICY

3

came the policy of the United States. This policy was helpful in
achieving a solution of the difficulties between China and the Powers
arising from the destruction of property and loss of foreign lives in
the course of the Boxer Rebellion. The terms of settlement of the
incident were contained in the Protocol of Peking, signed September
7 , 1901, which, among other things, required China to pay, over a
period of years, an indemnity amounting to 333 million dollars. Of
this the United States claimed only 25 million dollars, which proved
to be more than adequate to indemnify American nationals. Under
arrangements provided through Congressional action in 1908 and 1924
the United States remitted all Boxer indemnity payments not allocated
to claimants. Altogether the United States returned approximately
18 million dollars to the Chinese Government, which placed the money
in a trust fund for the education of Chinese youths in China and in
the United States. On J anuary 11, 1943, the United States yielded all
further claims to indemnity payments.

EARLY EFFORTS TO MAINTAIN THE OPEN DOOR

Since the turn of the century the United States has sought to main-
tain, by diplomacy, the twin principles of equal commercial oppor-
tunity and Chinese territorial and administrative integrity on
numerous occasions. At the same time the United States extended the
Open Door doctrine by interpreting it to prohibit exclusive mining
or railway privileges and commercial monopolies. These extensions
were initially aimed largely at Russia, which was pushing down
through Manchuria and threatening Chinese control over that vast
territory. After the Russo-Japanese War, 1904-1905, the principles
were turned more sharply against Japan, which had taken Russia’s
place in the southern half of Manchuria as a menace to Chinese
territorial and administrative integrity.

When Russia endeavored through pressure upon China to obtain
a privileged position in Manchuria, the United States circularized the
Powers on February 1, 1902, protesting that such action was contrary
to the Open Door policy. The American memorandum stated :

“An agreement by which China cedes to any corporation or com-
pany the exclusive right and privilege of opening mines, establishing
railroads, or in any other way industrially developing Manchuria,
can but be viewed with the gravest concern by the Government of the
United States. It constitutes a monopoly, which is a distinct breach
of the stipulations of treaties concluded between China and foreign
powers, and thereby seriously affects the rights of American citizens ;
it restricts their rightful trade and exposes it to being discriminated
against, interfered with, or otherwise jeopardized, and strongly tends

4

U. S. RELATIONS WITH CHINA

toward permanently impairing the sovereign rights of China in this
part of the Empire, and seriously interferes with her ability to meet
her international obligations. Furthermore, such concession on the
part of China will undoubtedly be followed by demands from other
powers for similar and equal exclusive advantages in other parts of
the Chinese Empire, and the inevitable result must be the complete
wreck of the policy of absolute equality of treatment of all nations
in regard to trade, navigation, and commerce within the confines of
the Empire.

“On the other hand, the attainment by one power of such exclusive
privileges for a commercial organization of its nationality conflicts
with the assurances repeatedly conveyed to this Government by the
Imperial Russian Ministry of Foreign Affairs of the Imperial Govern-
ment’s intention to follow the policy of the Open Door in China, as
advocated by the Government of the United States and accepted by
all the treaty powers having commercial interests in that Empire.”

When, in the following year, the United States learned that Russia
was pressing China for a bilateral convention which would have pro-
hibited treaty ports and foreign consuls in Manchuria and would have
excluded all foreigners except Russians from Chinese public service
in North China, the United States protested to Russia on April 25,
1903, that such action was contrary to the Open Door policy and
injurious to the legitimate interests of the United States in China.
The Sino- American Treaty of Commerce, signed October 8, 1903, re-
affirmed the concept of the Open Door and was accompanied by the
opening of Mukden and Antung in Manchuria to foreign trade, thus
thwarting Russian attempts to close it. 6

The Russo-Japanese War of 1904-1905, which was fought mainly
on Chinese soil, afforded the United States an opportunity to restate
the basic principles of its China policy. Upon the outbreak of the war,
Hay on February 10, 1904, appealed to both belligerents to limit as
much as possible their military operations and to respect the neu-
trality and “administrative entity” of China. 7 Subsequently he cir-
cularized the Powers in the interests of the integrity of China and the
Open Door in the Orient on J anuary 13, 1905 :

“It has come to our knowledge that apprehension exists on the part
of some of the powers that in the eventual negotiations for peace
between Russia and Japan claim may be made for the concession of
Chinese territory to neutral powers. The President would be loathe
to share this apprehension, believing that the introduction of ex-
traneous interests would seriously embarrass and postpone the settle-

# See annex 6.

7 See annex 7.

A CENTURY OF AMERICAN POLICY

5

ment of the issues involved in the present contest in the Far East, thus
making more remote the attainment of that peace which is so earnestly
to be desired. For its part, the United States has repeatedly made
its position well known, and has been gratified at the cordial welcome
accorded to its efforts to strengthen and perpetuate the broad policy
of maintaining the integrity of China and the ‘open door’ in the Orient,
whereby equality of commercial opportunity and access shall be en-
joyed by all nations. Holding these views the United States disclaims
any thought of reserved territorial rights or control in the Chinese
Empire, and it is deemed fitting to make this purpose frankly known
and to remove all apprehension on this score so far as concerns the
policy of this nation, which maintains so considerable a share of the
Pacific commerce of China and which holds such important posses-
sions in the western Pacific, almost at the gateway of China.” 8
President Theodore Roosevelt offered his good offices to bring about
peace negotiations between Russia and Japan. The resultant Treaty
of Portsmouth, September 5, 1905, pledged the two signatories to
restore Manchuria to China and to observe measures “which apply
equally to all nations” in the commerce and industry of Manchuria.

THE ROOT-TAKAHIRA AGREEMENT, 1908

A few years later, in an exchange of notes between the Secretary
of State and the Japanese Ambassador in Washington, Japan sub-
scribed to the twin principles of United States policy toward China.
By the Root-Takahira Agreement, November 30, 1908, the United
States and Japan mutually agreed (1) to maintain the status quo
in the Pacific and to respect each other’s territorial possessions in that
region; (2) to uphold the Open Door in China; and (3) to support
by pacific means the “independence and integrity of China.” 9

THE KNOX ^NEUTRALIZATION” PROPOSALS, 1909

In an effort to strengthen the Open Door principle and at the same
time to discourage the further penetration of Manchurian trade and
commerce by Russia and Japan, the United States suggested in 1909
that the Manchurian railroads be taken out of international politics.
President Taft and Secretary of State Knox saw that the territorial
integrity and political independence of China in Manchuria were being
menaced by the railway concessions granted to Japan and Russia, and
were convinced that this was contrary to the spirit and letter of the
Open Door. Knox circularized the Powers in November-December
1909 as follows :

8 See annex 8.

9 See annex 9.

6

U. S. RELATIONS WITH CHINA

“Perhaps the most effective way to preserve the undisturbed en-
joyment by China of all political rights in Manchuria and to promote
the development of those Provinces under a practical application of
the policy of the Open Door and equal commercial opportunity would
be to bring the Manchurian highways, the railroads, under an economic,
scientific, and impartial administration by some plan vesting in China
the ownership of the railroads through funds furnished for that pur-
pose by the interested powers willing to participate.”

Knox also proposed that the nationals of the participating Powers
should supervise the railroad system during the term of the loan, and
that the Governments concerned should enjoy for such period “the
usual preferences for their nationals and materials” upon an equitable
basis among themselves. 10 Great Britain, Germany, and China
indicated a willingness to accede in principle to the Knox proposal,
which was almost brutally rebuffed by Russia and J apan. The result
of the Knox neutralization scheme was to draw Russia and J apan more
closely together in defense of their interests in Manchuria and Inner
Mongolia. Although using the language of the Open Door and the
territorial integrity of China, they entered into treaty engagements
on July 4, 1910, and June 25, 1912, which in effect seemed designed
ultimately to close the door to others and to threaten the integrity
of China.

III. WORLD WAR I AND POST-WAR SETTLE-
MENTS

HOSTILITIES IN CHINA

World War I had repercussions in China even prior to the Chinese
declaration of war (August 14, 1917) against Germany. At the out-
break of the war China, on August 3, 1914, asked the United States to
assist in preventing the spread of hostilities to Chinese soil, where
the belligerents had foreign settlements and leased areas. The United
States accepted this request and informed the British Government on
August 11, 1914, of the American “desire to preserve the status quo
in China.” When Japan entered the war against Germany, Secretary
of State Bryan on August 19, 1914, informed the Japanese Govern-
ment that the United States “notes with satisfaction that Japan, in
demanding the surrender by Germany of the entire leased territory of
Kiaochow does so with the purpose of restoring that territory to
China, and that Japan is seeking no territorial aggrandizement in
China.” Bryan reminded Japan of its pledge to support “the inde-

10 See annex 10.

A CENTURY OF AMERICAN POLICY

7

pendence and integrity of China and the principle of equal opportuni-
ties for the commerce and industry of all nations in China” as con-
tained in the Root-Takahira Agreement of November 30, 1908.

THE TWENTY-ONE DEMANDS, 1915

Early in 1915 Japan secretly presented to China the Twenty-One
Demands, which, if accepted in full, would have made China a virtual
protectorate of Japan. Not only did the Japanese Government de-
mand further economic and political rights in Manchuria, Shantung,
and Inner Mongolia, but it also sought exclusive mining and indus-
trial rights in the Yangtze valley and actually demanded supervisory
control over Chinese social and political institutions, including not
only schools and churches but even the Government itself. When the
United States learned of the Demands it took the opportunity to re-
affirm its traditional policy toward China. In a note of March 13,
1915, to the Japanese Ambassador in Washington Bryan reviewed
American policy since the Open Door notes of 1899, called attention
to the various international undertakings concerning China, and
argued that Japan’s Demands were inconsistent with its past pro-
nouncements regarding the sovereignty of China. The Secretary
stated that the United States relied upon the “repeated assurances” of
Japan in regard to “the independence, integrity and commerce of
China” and on Japan’s taking “no steps” which would be “contrary to
the spirit of those assurances.” The Secretary pointed out that the
activity of Americans in China “has never been political, but on the
contrary has been primarily commercial with no afterthought as to
their effect upon the governmental policy of China.” Bryan also
stated :

“While on principle and under the treaties of 1844, 1858, 1868 and
1903 with China the United States has grounds upon which to base
objections to the Japanese ‘demands’ relative to Shantung, South
Manchuria, and East Mongolia, nevertheless the United States frankly
recognizes that territorial contiguity creates special relations between
Japan and these districts.”

The Secretary asserted, however, that the United States “could not
regard with indifference the assumption of political, military or
economic domination over China by a foreign Power”, and expressed
the hope that Japan would find it consonant with its interests “to
refrain from pressing upon China an acceptance of proposals which
would, if accepted, exclude Americans from equal participation in the
economic and industrial development of China and would limit the
political independence of that country.” The Secretary concluded his

8

U. S. RELATIONS WITH CHINA

note with the statement that the policy of the United States “is
directed to the maintenance of the independence, integrity and com-
mercial freedom of China and the preservation of legitimate American
rights and interests in that Republic.” 11

Despite these expressed American views and Chinese resistance,
Japan persisted and forced China, under the pressure of an ultimatum,
to agree to revised Demands which represented a retreat from the
extreme position taken when the original Demands were put forth.
Thereupon Bryan notified both Tokyo and Peking in identic notes
on May 11, 1915, that the United States “cannot recognize any agree-
ment or undertaking which has been entered into or which may be
entered into between the Governments of Japan and China, impair-
ing the treaty rights of the United States and its citizens in China,
the political or territorial integrity of the Republic of China, or the
international policy relative to China commonly known as the Open
Door policy”. 12

THE LANSING-ISHII AGREEMENT, NOVEMBER 2, 1917

As a result of its entrance into World War I, the United States
found itself associated with Japan. Once more the two Powers
sought to record a joint policy toward China, which had declared
war against Germany on August 14, 1917, by an exchange of notes
between the American Secretary of State and the Japanese Special
Ambassador. By the Lansing-Ishii Agreement of November 2, 1917,
the United States and Japan reaffirmed their respect for the principles
of the Open Door and the independence and territorial integrity of
China. The Agreement read in part :

“The Governments of the United States and Japan recognize that
territorial propinquity creates special relations between countries,
and consequently the Government of the United States recognizes that
J apan has special interests in China, particularly in the part to which
her possessions are contiguous.

“The territorial sovereignty of China, nevertheless, remains unim-
paired, and the Government of the United States has every confidence
in the repeated assurances of the Imperial Japanese Government that
while geographical position gives Japan such special interests they
have no desire to discriminate against the trade of other nations or to
disregard the commercial rights heretofore granted by China in
treaties with other powers.” 13

11 See annex 11.

u See annex 12.

18 See annex 13.

A CENTURY OF AMERICAN POLICY

9

By a secret protocol, withheld from the published exchange of notes,
but which the United States considered an inseparable part of the
Agreement, the two Powers agreed that they would “not take advan-
tage of the present conditions to seek special rights or privileges in
China which would abridge the rights of the subjects or citizens of
other friendly states.” The Lansing-Ishii Agreement was formally
annulled by an exchange of notes, dated April 14, 1923, following the
coming into force of the Nine-Power Treaty.

SETTLEMENT OF THE SHANTUNG QUESTION

At the Washington Conference of 1921-1922 the United States, in
concert with the United Kingdom, exercised its good offices in bringing
about a settlement of the Shantung controversy between China and
Japan. Early in World War I Japan seized the German leased terri-
tory of Kiaochow Bay and subsequently extended its control over the
entire Shantung peninsula. Japan promised ultimately to restore
Shantung Province to the sovereignty of China. During the war, how-
ever, Japan managed, through various treaties, to obtain recognition of
its dominant position in Shantung by China and the Allies. At the
Paris Peace Conference in 1919 China demanded the return of the
German leasehold and German economic privileges in the province.
Japan, on the other hand, insisted upon a treaty clause which would
recognize Japanese succession to all German rights and privileges,
including the railway, in Shantung. The American Delegation at
Paris supported China, protested against the transfer, and offered an
alternative plan to cede the former German holdings to the Allied
and Associated Powers, which were to make the proper disposition
of them later. President Wilson was not able to hold out against
the Japanese demands, and a clause was included in the Treaty of
Versailles by which Germany renounced in favor of Japan its rights
in Shantung. China thereupon refused to sign the treaty. The con-
troversy was not resolved during the intervening years. At the
Washington Conference the Chinese and Japanese delegates met with
British and American observers to consider the problem. As a result
of these direct negotiations Japan and China signed a treaty on
February 4, 1922, which provided for the restoration of Shantung in
full sovereignty to China, and for the purchase by China of the
Tsingtao-Tsinan Railway with funds obtained from Japanese bankers
in the form of a fifteen-year loan secured by a lien on the railroad.
The reassertion of Chinese sovereignty over Shantung, achieved with
United States assistance, was a considerable victory for China, al-
though the terms of the Japanese railway loan did not greatly disturb
Japan’s economic supremacy in that province.

10

U. S. RELATIONS WITH CHINA

THE NINE-POWER TREATY, FEBRUARY 6, 1922

After the close of World War I the United States succeeded in hav-
ing the twin principles of its policy toward China written into a
treaty. The Powers participating in the Washington Conference
signed the Nine-Power Treaty on February 6, 1922. The signatories,
other than China, agreed to respect the sovereignty, the independence,
and the territorial and administrative integrity of China, and to up-
hold the principle of the Open Door. The Powers, other than China,
also agreed “to refrain from taking advantage of conditions in China
in order to seek special rights or privileges which would abridge the
rights of subjects or citizens of friendly states, and from countenancing
action inimical to the security of such states.” 14

Mention should be made of the related naval arrangements con-
cluded at the Washington Conference. The Five-Power Naval
Treaty, signed on February 5, 1922, provided for the reduction and
limitation of naval forces, including those of the United States in the
Pacific which, together with the provision for the non-fortification of
United States possessions in the Far East, gave evidence that the
policy and purpose of the United States in the Far East was only
defensive.

By the Nine-Power Treaty traditional American policy was given a
broad, nine-power base. This treaty provided a sort of charter gov-
erning the relations between China and the Powers for almost two
decades. The treaty was one of the principal points at issue with
Japan after the seizure of Manchuria in 1931-1933, and was the subject
of the Brussels Conference called in 1937 pursuant to a League of
Nations resolution after the outbreak of the undeclared war between
Japan and China. The Brussels Conference, supported by the United
States, adopted a resolution on November 24, 1937, which, after re*
viewing Far Eastern developments since the Washington Conference,
reaffirmed the principles of the Nine-Power Treaty “as being among
the basic principles which are essential to world peace and orderly
progressive development of national and international life.” The
Brussels Conference recommended suspension of hostilities between
Japan and China and expressed the hope, which was not realized, that
the conference might be reconvened at a later date.

IV. NON-INTERFERENCE IN CHINESE INTERNAL
AFFAIRS — THE WASHINGTON CONFERENCE
AND AFTER

The Nine-Power Treaty of February 6, 1922, also contained a pro-
vision by which the signatory Powers, other than China, agreed “to

14 See annex 14.

A CENTURY OF AMERICAN POLICY

11

provide the fullest and most unembarrassed opportunity to China to
develop and maintain for herself an effective and stable government”.
This was in accordance with the long-held view of the United States
that China should be given time to progress along the road of national
development. The United States sympathized with the efforts of
Chinese people to achieve those political institutions which would best
meet their needs in the modern world and had followed a policy of
strict neutrality on internal Chinese developments. When the Manchu
dynasty had been challenged by the Republican revolution in October
1911, the United States had maintained its neutrality in the incipient
civil war and had helped neither the recognized government at Peking
nor the Republican revolutionists in the Yangtze Valley. Following
the abdication of the Manchus, the Chinese Republic was established on
February 12, 1912. De jure recognition by the United States of the
Republican Government followed on May 2, 1913.

STATEMENT BY SECRETARY KELLOGG, JANUARY 27, 1927

Subsequently in the 1920’s when the Chinese Nationalists, under the
leadership of the Kuomintang, were driving northward through the
Yangtze Valley in an effort to unite all China, Secretary of State Frank
B. Kellogg restated American sympathy with Chinese nationalism
and the American policy of non-interference in the internal affairs
of China. The statement by the Secretary of State, made public on
J anuary 27, 1927, said in part :

“The United States has always desired the unity, the independence
and prosperity of the Chinese nation. It has desired that tariff
control and extraterritoriality provided by our treaties with China
should as early as possible be released

“The Government of the United States has watched with sympathetic
interest the nationalistic awakening of China and welcomes every
advance made by the Chinese people toward reorganizing their sys-
tem of Government.

“During the difficult years since the establishment of the new regime
in 1912, the Government of the United States has endeavored in every
way to maintain an attitude of the most careful and strict neutrality
as among the several factions that have disputed with one another for
control in China. . . . This Government wishes to deal with China in
a most liberal spirit. It holds no concessions in China and has never
manifested any imperialistic attitude toward that country. It desires,
however, that its citizens be given equal opportunity with the citizens
of the other Powers to reside in China and to pursue their legitimate

12

U. S. RELATIONS WITH CHINA

occupations without special privileges, monopolies or spheres of special
interest or influence.” 15

Following the Nanking “incident” of March 24, 1927, when for-
eigners were subjected to indignities at the hands of Chinese National-
ist forces and were rescued by Western gunboats, the United States
strove to settle the matter in such a way as to compensate the Powers
for the injuries resulting from the civil strife, but without punitive
measures against the Chinese nation. Chinese xenophobia had pre-
vious manifestations, the Boxer Rebellion in 1900 being the best-
known example. Sporadic outbreaks of anti-foreignism occurred in
various parts of China during the Chinese Nationalist movement of
the 1920’s. Despite these manifestations of Chinese xenophobia the
United States dealt sympathetically with the new regime, made its
peace with the new central government, and ultimately extended
recognition to it.

RECOGNITION OF THE NATIONAL GOVERNMENT, 1928

After China had achieved a degree of unity under the Kuomintang
leadership of General Chiang Kai-shek, the United States recognized
the National Government of the Republic of China on July 25, 1928,
by concluding with that Government a treaty restoring tariff autonomy
to China — the first nation to do so. 16 In connection with the nego-
tiation of this treaty Mr. Kellogg stated :

“The good will of the United States toward China is proverbial and
the American Government and people welcome every advance made
by the Chinese in the direction of unity, peace and progress. We do
not believe in interference in their internal affairs. We ask of them
only that which we look for from every nation with which we main-
tain friendly intercourse, specifically, proper and adequate protection
of American citizens, their property and their lawful rights, and, in
general, treatment in no way discriminatory as compared with the
treatment accorded to the interests or nationals of any other country.”

V. THE SINO-SOVIET DISPUTE IN 1929

As the tide of Chinese nationalism swept northward in 1928 and 1929
it came into conflict with the rights and privileges of the Soviet Union
in Manchuria. In mid-1929 a dispute developed between China and
the Soviet Union over the Chinese Eastern Railway in Manchuria.
The United States immediately took the lead in attempting to achieve

u See annex 15.

” See annex 16.

A CENTURY OF AMERICAN POLICY

13

a peaceful solution. The efforts of Secretary of State Stimson failed
to arrest intermittent armed clashes along the Manchurian border. In
mid-November Russian troops invaded Manchuria in force.

Eventually, following direct negotiations, the U.S.S.R. and China
on December 22, 1929, signed a Protocol under which the controversy
was settled on the basis of restoring the statics quo ante , and the Soviet
Union retained the special privileges in the Chinese Eastern Railway
zone originally acquired by the Czarist Government in the 1890 ’s but
subsequently redefined in the Sino-Soviet Treaties of 1924.

VI. JAPANESE EXPANSION INTO CHINA FROM

1931

THE NON-RECOGNITION DOCTRINE OF SECRETARY STIMSON

When Japan embarked upon a policy of forcible expansion in Man-
churia in September 1931, the United States in cooperation with the
League of Nations, of which it was not a member, sought a peaceful
solution of the controversy.

As it became evident that Japan was determined to persist in its
course of conquest, Mr. Stimson addressed notes to both Japan and
China on January 7, 1932, in which he announced the policy of non-
recognition of territorial changes brought about by force. In identic
notes the Secretary informed the two Powers that the United States
“cannot admit the legality of any situation de facto nor does it intend
to recognize any treaty or agreement entered into between those
Governments, or agents thereof, which may impair the treaty rights of
the United States or its citizens in China, including those which
relate to the sovereignty, the independence, or the territorial and
administrative integrity of the Republic of China, or to the inter-
national policy relative to China, commonly known as the open door
policy ; and that it does not intend to recognize any situation, treaty or
agreement which may be brought about by means contrary to the
covenants and obligations of the Pact of Paris of August 27, 1928,
to which Treaty both China and Japan, as well as the United States,
are parties.” 17

After hostilities had been extended to Shanghai and Manchurian
independence had been proclaimed, Mr. Stimson sought world-wide
support for this position in a letter to Senator Borah, Chairman of
the Senate Committee on Foreign Relations, dated February 23, 1932,
which was made public the next day. At the same time the Secretary
reaffirmed the policy of his predecessor as regards American sympathy

17 See annex 17.

14

tJ. S. RELATIONS WITH CHINA

with Chinese nationalism and non-interference in Chinese internal
affairs. After tracing the development of traditional United States
policy toward China since the turn of the century, Mr. Stimson
commented on the principles underlying the Nine-Power Treaty as
follows :

“This Treaty thus represents a carefully developed and matured
international policy intended, on the one hand, to assure to all of the
contracting parties their rights and interests in and with regard to
China, and on the other hand, to assure to the people of China the
fullest opportunity to develop without molestation their sovereignty
and independence according to the modern and enlightened standards
believed to maintain among the peoples of this earth. At the time
this Treaty was signed, it was known that China was engaged in an
attempt to develop the free institutions of a self-governing republic
after her recent revolution from an autocratic form of government;
that she would require many years of both economic and political
effort to that end ; and that her progress would necessarily be slow.
The Treaty was thus a covenant of self-denial among the signatory
powers in deliberate renunciation of any policy of aggression which
might tend to interfere with that development. It was believed— and
the whole history of the development of the ‘Open Door’ policy reveals
that faith — that only by such a process, under the protection of such
an agreement, could the fullest interests not only of China but of all
nations which have intercourse with her best be served.”

In stressing the obligations assumed by the signatories of the
Nine-Power Treaty, Mr. Stimson pointed out that it was but one of
several “interrelated and interdependent” treaties negotiated at the
Washington Conference. He stated that the “willingness of the
American Government to surrender its then commanding lead in
battleship construction and to leave its positions at Guam and in the
Philippines without further fortifications, was predicated upon,
among other things, the self-denying covenants contained in the Nine-
Power Treaty which assured the nations of the world not only of
equal opportunity for their Eastern trade but also against the military
aggrandizement of any other power at the expense of China.” Calling
attention to the enlightened principles embodied in the Kellogg-
Briand Pact and the Nine-Power Treaty, Secretary Stimson continued :
“We believe that this situation would have been avoided had these
covenants been faithfully observed, and no evidence has come to us to
indicate that a due compliance with them would have interfered
with the adequate protection of the legitimate rights in China of the
signatories of those treaties and their nationals.” He suggested that

A CENTURY OF AMERICAN POLICY

15

the rest of the world join the United States in applying the non-
recognition principle to “any situation, treaty or agreement entered
into” by Japan and China “in violation of the covenants of these
treaties, which affect the rights of our Government or its citizens in
China.” If other Governments were to do so “a caveat will be placed
upon such action which, we believe, will effectively bar the legality
hereafter of any title or right sought to be obtained by pressure or
treaty violation.”

The Secretary concluded his letter with the statement :

“In the past our Government, as one of the leading powers on the
Pacific Ocean, has rested its policy upon an abiding faith in the future
of the people of China and upon the ultimate success in dealing with
them of the principles of fair play, patience, and mutual goodwill.
We appreciate the immensity of the task which lies before her states-
men in the development of her country and its government. The
delays in her progress, the instability of her attempts to secure a re-
sponsible government, were foreseen by Messrs. Hay and Hughes and
their contemporaries and were the very obstacles which the policy of
the Open Door was designed to meet. We concur with those states-
men, representing all the nations, in the Washington Conference who
decided that China was entitled to the time necessary to accomplish
her development. We are prepared to make that our policy for the
future.” 18

The non-recognition principle enunciated by Secretary Stimson,
which was also accepted by the League of Nations, remained the basis
of United States policy and was reaffirmed on numerous occasions
during the years between the time of its enunciation and American
involvement in World War II following the Japanese attack on Pearl
Harbor.

DEFENSE OF AMERICAN TREATY RIGHTS IN CHINA

The United States continued in the following years to assert its treaty
rights in China in the face of the extension of Japanese activities.
When a Japanese Foreign Office spokesman (Mr. Eiji Amau) issued
a statement on April 17, 1934, proclaiming (1) Japanese “special re-
sponsibilities in East Asia” and (2) Japanese political guardianship
of China, and warning the Powers against financial, political, or com-
mercial undertakings prejudicial to Japanese interests in China, the
United States quickly replied. In a carefully worded note delivered
in Tokyo on April 29, 1934, the United States reaffirmed its treaty

18 See annex 18.

16

U. S. RELATIONS WITH CHINA

rights. Secretary Hull restated American policy toward China as
follows :

“The relations of the United States with China are governed, as
are our relations with Japan and our relations with other countries,
by the generally accepted principles of international law and the pro-
visions of treaties to which the United States is a party. In interna-
tional law, in simple justice, and by virtue of treaties, the United States
has with regard to China certain rights and certain obligations. In
addition, it is associated with China or with Japan or with both, to-
gether with certain other countries, in multilateral treaties relating
to rights and obligations in the Far East, and in one great multilateral
treaty to which practically all the countries of the world are parties.

“Entered into by agreement, for the purpose of regulating relations
between and among nations, treaties can lawfully be modified or be
terminated — but only by processes prescribed or recognized or agreed
upon by the parties to them.

“In the international associations and relationships of the United
States, the American Government seeks to be duly considerate of the
rights, the obligations and the legitimate interests of other countries,
and it expects on the part of other governments due consideration of
the rights, the obligations and the legitimate interests of the United
States.

“In the opinion of the American people and the American Govern-
ment, no nation can, without the assent of the other nations concerned,
rightfully endeavour to make conclusive its will in situations where
there are involved the rights, the obligations and the legitimate inter-
ests of other sovereign states.”

During this time the puppet regime in Manchuria planned to estab-
lish an official monopoly, the Manchurian Petroleum Company, for
the distribution of oil products in Manchuria. The United States
protested to Tokyo on July 7, 1934, and asked the Japanese Govern-
ment to “use its influence to discourage the adoption by the Manchurian
authorities of measures which tend to violate the principle of the Open
Door and the provisions of various treaties which the authorities in
Manchuria have agreed to respect.” A number of notes on the subject
were exchanged in the following months in which the Japanese Gov-
ernment refused to accept responsibility for the actions of the Man-
churian officials, while the United States continued to maintain the
principle of the Open Door. Finally, the United States summarized
its position in this controversy in a note to the Japanese Government,
dated April 15, 1935, as follows :

A CENTURY OF AMERICAN POLICY

17

“The American Government greatly regrets that the Japanese Gov-
ernment has not seen its way clear to use the influence which it
possesses through its close and peculiar relations with the present
regime in Manchuria to uphold in practice the principle of the Open
Door and the fulfillment of the treaty obligations which both the
Japanese Government and the authorities in Manchuria have on
numerous occasions declared that they would maintain.

. . the American Government is constrained to express its con-
sidered view that upon the Japanese Government must rest the ulti-
mate responsibility for injury to American interests resulting from
the creation and operation of the petroleum monopoly in Manchuria.”

STATEMENT BY SECRETARY HULL, DECEMBER 5, 1935

Japan persisted in penetrating deeper into China. The attempt by
Japan, late in 1935, to convert the five northern provinces of Hopei,
Chahar, Suiyuan, Shansi, and Shantung into an autonomous area
caused no change in the American attitude. In a statement to the
press on December 5, 1935, Mr. Hull reiterated the position of the
United States :

“Unusual developments in any part of China are rightfully and
necessarily of concern not alone to the Government and people of
China but to all of the many powers which have interests in China.
For, in relations with China and in China, the treaty rights and the
treaty obligations of the ‘treaty powers’ are in general identical. The
United States is one of those powers.

“In the area under reference the interests of the United States are
similar to those of other powers. In that area there are located, and
our rights and obligations appertain to, a considerable number of
American nationals, some American property, and substantial Ameri-
can commercial and cultural activities. The American Government
is therefore closely observing what is happening there.

“Political disturbances and pressures give rise to uncertainty and
misgiving and tend to produce economic and social dislocations. They
make difficult the enjoyment of treaty rights and the fulfillment of
treaty obligations.

“The views of the American Government with regard to such
matters not alone in relation to China but in relation to the whole
world are well known. As I have stated on many occasions, it seems
to this Government most important in this period of world-wide po-
litical unrest and economic instability that governments and peoples
keep faith in principles and pledges. In international relations there
must be agreements and respect for agreements in order that there

18

U. S. RELATIONS WITH CHINA

may be the confidence and stability and sense of security which are
essential to orderly life and progress. This country has abiding faith
in the fundamental principles of its traditional policy. This Gov-
ernment adheres to the provisions of the treaties to which it is a party
and continues to bespeak respect by all nations for the provisions of
treaties solemnly entered into for the purpose of facilitating and regu-
lating, to reciprocal and common advantage, the contacts between
and among the countries signatory.” 19

VII. THE JAPANESE UNDECLARED WAR OF 1937

At the start of the undeclared war of Japan in China, following a
clash between Japanese and Chinese troops on July 7, 1937, at the
Marco Polo Bridge outside Peiping, Mr. Hull urged a policy of self-
restraint upon the Japanese Government. On July 16, 1937, the Sec-
retary issued a statement on fundamental principles of international
policy containing the precepts advocated by the United States in inter-
national relations which were applicable to the Sino- Japanese con-
troversy. The statement by Mr. Hull enumerated such principles as
maintenance of peace; abstinence from the use of force in relations
between states; abstinence from interference in the internal affairs
of other nations ; adjustment of problems in international relations by
processes of peaceful negotiation and agreement ; faithful observance
of international agreements ; modification of provisions of treaties by
orderly processes carried out in a spirit of mutual helpfulness and
accommodation; respect by all nations for the rights of others and
performance by all nations of established obligations ; promotion of
economic security and stability throughout the world; and effective
equality of commercial opportunity and application of the principle
of equality of treatment. These principles were reaffirmed in a later
statement issued by the Department of State on August 23, 1937, in
which it was made clear that the United States regarded these prin-
ciples as being applicable to the Pacific area.

During the interval between the first and second statements men-
tioned above, the United States sought ways and means of bringing
about an amicable settlement between China and Japan. Besides
urging both disputants to seek a peaceful solution the United States
on August 10, 1937, informally offered its good offices to Japan in an
effort to settle the controversy. This offer contemplated providing
neutral ground where Japanese and Chinese representatives might
meet to negotiate, and giving assistance in adjusting the difficulties

19 See annex 19.

A CENTURY OF AMERICAN POLICY

19

which might develop during the negotiations. As Japan did not
respond to the offer, the United States Government felt that no useful
purpose would he served in making a similar approach to the Chinese
Government.

THE “QUARANTINE’’ SPEECH OF PRESIDENT ROOSEVELT

OCTOBER 5, 1937

As Japanese military operations in China increased in intensity it
became evident that Japan was bent upon solving the controversy by
force. In an address delivered at Chicago on October 5, 1937, Presi-
dent Roosevelt, without mentioning any Power by name, condemned
the Japanese resort to undeclared war against China. The President
cited the spreading “epidemic of world lawlessness” and drew the
parallel that in case of an epidemic of physical disease the community
joins in a “quarantine” of the patients in order to protect the health
of the community against the spread of the disease. The President
stated that war was a “contagion whether it be declared or undeclared”,
and that it “can engulf states and peoples remote from the original
scene of hostilities.” The following day the Department of State
underscored American sympathy with China by issuing a statement
which said in part :

“In the light of the unfolding developments in the Far East, the
Government of the United States has been forced to the conclusion
that the action of Japan in China is inconsistent with the principles
which should govern the relationships between nations and is con-
trary to the provisions of the Nine-Power Treaty of February 6, 1922,
regarding principles and policies to be followed in matters concerning
China, and to those of the Kellogg-Briand Pact of August 27, 1928.” 20

DEFENSE OF THE PRINCIPLE OF THE OPEN DOOR

During the undeclared war the United States on numerous occasions
protested against the violation of its treaty rights in China by Japan.
The United States included within the term “treaty rights” protection
of American missionaries and their property, as well as protection of
Americans engaged in commercial activity. In the course of thfeir
campaigns, Japan’s military forces frequently violated American mis-
sionary property either by outright seizure for occupation purposes or
by bombing and shelling of the property. It appeared that Japanese
violation of American missionary property was part of a deliberate
attempt to eradicate American cultural influence in China, inasmuch as

See annex 20.

20

U. S. RELATIONS WITH CHINA

American missionaries, through their religious, educational, and medi-
cal work, had played a very large part in spreading Western concepts
of thought ever since the opening of China to intercourse with the
West, and in developing a close cultural tie between the United States
and China. Although the mission stations, frequently located in the
interior, were for the most part conspicuously marked with the Ameri-
can flag, the J apanese usually disregarded such marking. The United
States protested these violations of American property in China, but
received as little satisfaction from the Japanese Government on this
aspect as it had in answer to its protests on violations of commercial
interests.

In a note to J apan, dated October 6, 1938, the United States called
attention to the “categorical assurances” given by the Japanese Gov-
ernment that the Open Door would be maintained in China. The note
reviewed numerous instances in which actions by Japanese agencies in
China had contravened these assurances and interfered with American
treaty rights in China. The note closed with a request that Japan
implement its “assurances already given with regard to the main-
tenance of the Open Door and to non-interference with American
rights” by taking the following effective measures :

“1. The discontinuance of discriminatory exchange control and of
other measures imposed in areas in China under Japanese control
which operate either directly or indirectly to discriminate against
American trade and enterprise ;

“2. The discontinuance of any monopoly or of any preference which
would deprive American nationals of the right of undertaking any
legitimate trade or industry in China or of any arrangement which
might purport to establish in favor of Japanese interests any general
superiority of rights with regard to commercial or economic develop-
ment in any region of China ; and

“3. The discontinuance of interference by Japanese authorities in
China with American property and other rights including such forms
of interference as censorship of American mail and telegrams and
restrictions upon residence and travel by Americans and upon Ameri-
can trade and shipping.” 21

In its reply of November 18, 1938, Japan denied the American con-
tention that Japanese actions in China violated American treaty rights
or discriminated against American interests in China. The note from
the Japanese Foreign Minister to the American Ambassador in Japan
indicated that Japan did not interpret the principle of the Open Door

n See annex 21.

A CENTURY OF AMERICAN POLICY 21

in the same way as did the United States. The reply of the Japanese
Foreign Minister of November 18, 1938, concluded as follows :

“At present Japan, devoting its entire energy to the establishment
of a new order based on genuine international justice throughout East
Asia, is making rapid strides toward the attainment of this objective.
The successful accomplishment of this purpose is not only indispens-
able to the existence of Japan, but also constitutes the very foundation
of the enduring peace and stability of East Asia.

“It is the firm conviction of the J apanese Government that now, at
a time of the continuing development of new conditions in East Asia,
an attempt to apply to present and future conditions without any
changes concepts and principles which were applicable to conditions
prevailing before the present incident does not in any way contribute
to the solution of immediate issues and further does not in the least
promote the firm establishment of enduring peace in East Asia.

“The Imperial Government, however, does not have any intention
of objecting to the participation in the great work of the reconstruc-
tion of East Asia by your Excellency’s country or by other Powers,
in all fields of trade and industry, when such participation is under-
taken with an understanding of the purport of the above stated re-
marks ; and further, I believe that the regimes now being formed in
China are also prepared to welcome such participation.” 22

The American note of December 30, 1938, delivered by the Ambas-
sador in Tokyo to the Japanese Foreign Minister, challenged Japan’s
interpretation of the Open Door principle and reaffirmed the views
contained in the previous communication of October 6, 1938. The
United States again called upon Japan to observe its treaty obliga-
tions. The United States denied that its treaty rights in China could
be abrogated by the unilateral action of Japan, and stressed the fact
that it was always ready and willing to discuss treaty revision by or-
derly processes of negotiation and agreement among the parties thereto.
The note of December 30, 1938, staled :

“The admonition that enjoyment by the nationals of the United
States of non-discriminatory treatment in China — a general and well
established right — is henceforth to be contingent upon an admission
by the Government of the United States of the validity of the concep-
tion of J apanese authorities of a ‘new situation’ and a ‘new order’ in
East Asia, is, in the opinion of this Government, highly paradoxi-
cal. . . .

See annex 22.

22

TJ. S. RELATIONS WITH CHINA

“Whatever may be the changes which have taken place in the situa-
tion in the Far East and whatever may be the situation now, these
matters are of no less interest and concern to the American Govern-
ment than have been the situations which have prevailed there in the
past, and such changes as may henceforth take place there, changes
which may enter into the producing of a ‘new situation’ and a ‘new
order’, are and will be of like concern to this Government. This Gov-
ernment is well aware that the situation has changed. This Gov-
ernment is also well aware that many of the changes have been brought
about by the action of Japan. This Government does not admit, how-
ever, that there is need or warrant for any one Power to take upon it-
self to prescribe what shall be the terms and conditions of a ‘new
order’ in areas not under its sovereignty and to constitute itself the
repository of authority and the agent of destiny in regard
thereto. . . .

“The United States has in its international relations rights and
obligations which derive from international law and rights and obli-
gations which rest upon treaty provisions. Of those which rest on
treaty provisions, its rights and obligations in and with regard to
China rest in part upon provisions in treaties between the United
States and China and in part on provisions in treaties between the
United States and several other powers including both China and
Japan. These treaties were concluded in good faith for the pur-
pose of safeguarding and promoting the interests not of one only but
of all of their signatories. The people and the Government of the
United States cannot assent to the abrogation of any of this country’s
rights or obligations by the arbitrary action of agents or authorities
of any other country.

“The Government of the United States has, however, always been
prepared and is now prepared to give due and ample consideration
to any proposals based on justice and reason which envisage the re-
solving of problems in a manner duly considerate of the rights and
obligations of all parties directly concerned by processes of free nego-
tiation and new commitment by and among all of the parties so con-
cerned. There has been and there continues to be opportunity for
the Japanese Government to put forward such proposals. This Gov-
ernment has been and it continues to be willing to discuss such pro-
posals, if and when put forward, with representatives of the other
powers, including Japan and China, whose rights and interests are
involved, at whatever time and in whatever place may be commonly
agreed upon.

A CENTURY OF AMERICAN POLICY

23

“Meanwhile, this Government reserves all rights of the United
States as they exist and does not give assent to any impairment of any
of those rights.” 28

This and subsequent protests regarding violation of American
treaty rights in China were equally unproductive of positive results.

From the beginning of Japan’s undeclared war the sympathies of
the American people were with China. Despite this fact, and despite
Japanese violations of American treaty rights in China, the United
States continued to sell war supplies to Japan for about two and
a half years after the commencement of Sino- Japanese hostilities in
accordance with the traditional theory of freedom of trade, and the
then existing concepts of neutrality and freedom of the seas. F urther-
more, during these years the United States tried to steer a course
which would not involve it in hostilities in the Far East.

DEFENSE OF CELINE SE INTEGRITY

United States interest in the maintenance of Chinese administrative
integrity under existing arrangements continued unabated through-
out the undeclared war. Beginning in the fall of 1937, the United
States repeatedly made representations to Japan regarding the failure
of the latter to maintain the integrity of the Chinese Maritime Customs
Administration 24 and the Chinese Salt Administration, the revenues
from both of which had been pledged to service foreign loans, includ-
ing American loans. The representations did not deter Japan from
its course, which included setting up various “autonomous” regimes
in those parts of China occupied by the Japanese Army.

Late in 1939 the United States learned that Japan was considering
setting up a Chinese central regime at Nanking under Wang Ching-
wei. The United States took the position that such a regime would
be a purely artificial creation, lacking any broad Chinese popular
support; that it would be designed primarily to serve the special
purposes of Japan; and that it would result in depriving the people
and the Government of the United States, as well as those of other
third countries, of long established rights of equal opportunity and
fair treatment in China which were legally theirs. When the new
regime was set up in March 1940 the United States announced that
it would continue to recognize the National Government of the Re-
public of China whose capital was then at Chungking. In a forceful

33 See annex 23.

34 The United States in 1928 had been the first country to restore tariff
autonomy to China.

24

U. S. RELATIONS WITH CHINA

public statement on March 30, 1940, Mr. Hull denounced the use of
force in setting up the new Chinese regime under Japanese auspices
as follows :

“In the light of what has happened in various parts of China
since 1931, the setting up of a new regime at Nanking has the ap-
pearance of a further step in a program of one country by armed
force to impose its will upon a neighboring country and to block off
a large area of the world from normal political and economic rela-
tionships with the rest of the world. The developments there appear
to be following the pattern of other regimes and systems which have
been set up in China under the aegis of an outside power and which
in their functioning especially favor the interests of that outside power
and deny to nationals of the United States and other third countries
enjoyment of long-established rights of equal and fair treatment which
are legally and justly theirs.

“The Government of the United States has noted statements of
high officials of that outside power that their country intends to re-
spect the political independence and the freedom of the other country
and that with the development of affairs in East Asia this intention
will be demonstrated. To this Government the circumstances, both
military and diplomatic, which have attended the setting up of the
new regime at Nanking do not seem consistent with such an intention.

“The attitude of the United States toward use of armed force as an
instrument of national policy is well known. Its attitude and posi-
tion with regard to various aspects of the situation in the Far East
have been made clear on numerous occasions. That attitude and
position remain unchanged.

“This Government again makes full reservation of this country’s
rights under international law and existing treaties and agreements.” 25

UNITED STATES SUPPORT OF CHINESE RESISTANCE

By way of moral and material support to China in its resistance to
Japan’s undeclared war, the United States gave notice to Japan on
July 26, 1939, of its desire to terminate the Treaty of Commerce and
Navigation between the United States and Japan signed on Febru-
ary 21, 1911. As a result of this action, after January 26, 1940, the
United States was in a position to resort to successive economic meas-
ures against Japan. After the termination of the commercial treaty
the United States increasingly restricted the shipment of oil, scrap
iron, machinery, machine tools, and other war materiel to Japan.
(A moral embargo on the shipment of aircraft, aircraft parts and ac-

See annex 24.

A CENTURY OF AMERICAN POLICY

25

cessories, and aerial bombs to Japan had been in effect since mid-1938.)
On July 26, 1941, President Roosevelt issued an Executive Order
freezing Japanese assets in the United States, thereby virtually cut-
ting off all trade with Japan.

The United States also supported China with positive measures in
its resistance against Japanese conquest. American aviators on active
duty were permitted to enter the Reserves and to join the Chinese
armed forces, a military mission was sent to China, and China was
declared eligible for lend-lease assistance on May 6, 1941. In addi-
tion, there were various economic measures which are discussed later
in this chapter.

AMERICAN- JAPANESE INFORMAL CONVERSATIONS IN 1941

Beginning in the spring of 1941 the United States and Japan en-
tered into informal, exploratory conversations for a comprehensive
and peaceful settlement of the various political and economic prob-
lems of the F ar East. During these conversations, which lasted until
December 7, 1941, an effort was made to draft an agreement containing
the principles on which peace could be maintained in the Pacific area.
The United States remained firm in its conviction that an agreement
should contain the following principles which were to be supported
by both Powers :

1. The principle of the inviolability of territorial integrity and
sovereignty of each and all nations.

2. The principle of non-interference in the internal affairs of other
countries.

3. The principle of equality, including equality of commercial
opportunity and treatment.

4. The principle of reliance upon international cooperation and
conciliation for the prevention and pacific settlement of controversies
and for improvement of international conditions by peaceful methods
and processes. 26

The United States proposed that all Japanese forces in China be
withdrawn, and that the National Government of the Republic of
China be supported — militarily, politically, and economically — as
against any other regime in China. The United States was willing
to reestablish normal trade relations with Japan and to improve
economic relations between the two countries. Japan, on the other
hand, sought to obtain recognition from the United States of Japa-
nese hegemony in the Far East. Among other things, Japan wanted
the United States to discontinue furnishing aid to the Nationalist

062121

See annex 25.

26

U. S. RELATIONS WITH CHINA

regime in Chungking which was resisting Japanese onslaughts. The
United States refusal to stop its support of China and the unwilling-
ness of the United States to compromise on the principle of Chinese
sovereignty were among the immediate motivations of the Japanese
attack upon Pearl Harbor on December 7, 1941. This Japanese ag-
gression abruptly terminated the bilateral informal conversations.

VIII. WORLD WAR II

Following the attack on Pearl Harbor the United States and China
fought side by side against Japan. The United States had already
been giving assistance to China, in accordance with the American
policy of extending aid to nations resisting aggression, but now that
assistance was accelerated and increased in scope. It included lend-
lease, and military and financial assistance.

THE LEND-LEASE PROGRAM, 1941-1943

On March 15, 1941, four days after the passage of the Lend-Lease
Act, President Roosevelt made an address in which he said : “China
likewise expresses the magnificent will of millions of plain people to
resist the dismemberment of their Nation. China, through the Gen-
eralissimo, Chiang Kai-shek, asks our help. America has said that
China shall have our help.” After a lend-lease program to meet the
emergency needs of China had been developed following consultations
between Chinese and American officials, the President, on May 6, 1941,
in accordance with the provisions of the Act, declared the defense of
China to be vital to the defense of the United States. A Master Lend-
Lease Agreement with China was not signed, however, until June 2,
1942. 27

Lend-lease aid to China was begun in 1941, and was aimed par-
ticularly at improving transport over the Burma Road, the only artery
through which goods could flow into unoccupied China. The first
lend-lease shipments consisted primarily of trucks, spare parts, motor
fuel, and lubricants for use on the Burma Road and material for the
development of the highway. At the request of Generalissimo Chiang
Kai-shek a mission of American traffic experts was sent to China in
June 1941, to survey the Burma Road and make recommendations for
increasing traffic over it. On the basis of these recommendations the
Chinese Government undertook a number of measures to improve the
administration of the road. Additional spare parts and repair equip-
ment were furnished to China under lend-lease, and a number of

27 See annex 26 .

A CENTURY OF AMERICAN POLICY

27

American motor-traffic technicians were recruited in the United States
and sent to China at lend-lease expense. The United States also
furnished road-building equipment and asphalt under lend-lease
to assist China in hard-surfacing the Burma Road. As a result of
these efforts and of the arrival of large numbers of American trucks,
the tonnage carried over the Burma Road by November 1941, was
almost four times greater than it had been during the early months of
1941. The quantity of material carried was increased from 4,000 tons
a month at the beginning of 1941 to 15,000 tons in November 1941.

While the capacity of the Burma Road was being expanded, lend-
lease was helping in the attempt to open a second route into China.
During 1941 lend-lease fimds amoimting to 15 million dollars were
allocated to China for use in constructing a railroad from Burma into
China which had been started by the Chinese Government in 1938, and
which would have made possible a great increase in the volume of sup-
plies transported to China through the Burmese port of Rangoon.
The completion of this project was prevented, however, by successful
Japanese military operations in Burma.

The fall of Burma and the seizure of the southern portion of the
Burma Road by the Japanese early in 1942 left air transport as the
only effective means of getting supplies into China. Great progress
was made, particularly during 1943, in the development of an air-
transport route into China. In the month of December 1943, for ex-
ample, twice as much cargo (13,450 short tons) was flown into China as
in all 1942 (5,258 short tons) . In January 1944, the tonnage of goods
flown into China was seven times that of January 1943 — 14,472 short
tons as compared to 1,923 short tons — and the monthly tonnage con-
tinued to increase. It should be pointed out, however, that a very
large proportion of the supplies flown into China during this period
was destined for the United States miiltary forces then operating in
China. Some of this traffic was carried by planes operated by the
China National Aviation Corporation, part of whose fleet of cargo
planes was furnished to China through lend-lease channels. The bulk
of the supplies which were flown from India to China was, however,
transported by the Tenth United States Air Force between April and
December 1942, and subsequently by the United States Air Transport
Command, which, beginning in December 1942, operated a ferry
service 500 miles long between Assam, India and the Yunnan plateau,
over the towering “Hump” of the Himalayas — the most difficult supply
operation of the entire war.

At the same time efforts were made under the lend-lease program
to develop new land supply routes to China. By the end of 1943
American engineers were constructing the Ledo Road from Assam in

28

U. S. RELATIONS WITH CHINA

India across upper Burma to China. (This road, renamed the Stil-
well Road, was finally opened early in 1945.) India became the great
supply base for operations whose objectives were the expulsion of
Japan from Burma and the reopening of land transportation through
that area for supplies for China. Stockpiles in India of material for
China, awaiting shipment as soon as new transportation routes were
opened, were steadily growing by the end of 1943.

The total value of lend-lease supplies transferred to China through
December 31, 1943, amounted to 201 million dollars, of which 175.6 mil-
lion dollars represented goods and 25.4 million dollars represented
services rendered. In addition, goods valued at 191.7 million dollars
were consigned to the American commanding general in the China-
Burma-India Theater for transfer to China. 27a

MILITARY AID, 1941-1943

The United States began to give military aid to China even before
the United States became a belligerent in World War II. The lend-
lease supplies that were provided China between the time of the cutting
of the Burma Road and the end' of 1943 had the effect of greatly in-
creasing this form of assistance. Early in 1941 the United States and
China developed a project under lend-lease for equipping and train-
ing large numbers of Chinese forces. The United States Government
subsequently organized a military mission composed of specialists in
all phases of modern warfare to advise Chinese authorities on the use
of the materials provided in connection with this project. This mis-
sion, which arrived in China in November 1941, was supported by
lend-lease funds.

Unfortunately, little of the equipment intended for China’s ground
forces under this program ever reached its intended destination.
The United States was more successful, however, in furnishing China
with assistance in the air. Early in 1941 this Government approved
a plan which permitted American fighter planes piloted by volunteer
American airmen and serviced by American ground crews to fight
against Japan in the service of China. The American Volunteer
Group (the “Flying Tigers”), under the command of Major General
Claire L. Chennault, was formally constituted as a unit of China’s
armed forces by an order issued by Generalissimo Chiang Kai-shek
on August 1, 1941. During the time that it was in existence the
American Volunteer Group provided an effective air defense for
southwest China and rendered invaluable assistance to hard-pressed
Chinese and other forces in Burma. The American Volunteer Group

* 7a For further information concerning lend-lease and the Lend-Lease Pipeline
Agreements, see chapters V and VII.

A CENTURY OF AMERICAN POLICY

29

was disbanded in July 1942, when its personnel was incorporated into
the United States Tenth Air Force, which had been organized in the
China-Burma-India Theater early in 1942. In recognition of its
increasingly important role the United States air unit in China was
formally activated as the Fourteenth United States Air Force on
March 10, 1943. This force kept control of the air over unoccupied
China, engaged in expanding operations against the Japanese, and
ably performed the vital mission of protecting the terminal bases
of the air transport route into China. The activities of this force
helped to maintain China’s military position and morale throughout
the war.

In addition to furnishing China with fighter planes and pilots, the
United States took steps to put into effect a program for building a
strong and well-equipped Chinese Air Force. In May 1941 an Ameri-
can Air Mission headed by General Clagett was sent to China to
survey the situation. Among other things, the report of the Air
Mission recommended that a program to train Chinese pilots and
mechanics be developed, inasmuch as China did not have enough
men trained to fly or maintain the planes that were needed to defend
China from Japanese air attacks.

Because of the difficulties that would be encountered in trying to
establish aviation training centers in China, a program was developed,
using lend-lease funds, to implement this recommendation by train-
ing Chinese flyers in the United States. In October 1941 the first
group of fifty students arrived in the United States to take the stand-
ard United States Air Force training course for pilots at Thunder-
bird Field in Arizona. Other groups of Chinese pilots came to the
United States for training during the war. The United States Army
also trained Chinese aviation personnel in India.

The program for training Chinese aviation personnel had an im-
portant bearing on operations against Japan. In November 1943
the formation of a Chinese- American Composite Wing of the Chinese
Air Force was announced. This wing, composed of Chinese and
American airmen and ground units and equipped with fighter and
bombing planes, formed the nucleus for a strong Chinese Air Force,
and as the Chinese personnel gained experience the American personnel
was gradually withdrawn.

Soon after its entry into the war, the United States, at the formal
request of the Chinese Government, sent Lieutenant General Joseph
W. Stilwell to China. 2 ™ In addition to being Commanding General
of United States Forces in the China-Burma-India Theater, and of

For the Stimson-Soong exchange of letters with respect to General Stilwell ’s
assignment, see annex 27 (a) and (b).

30

U. S. RELATIONS WITH CHINA

such Chinese troops as Generalissimo Chiang Kai-shek might assign
to him, General Stilwell was also to be Chief of Staff of the Generalis-
simo’s proposed Joint Staff — an Allied staff made up of officers repre-
senting the United States, the United Kingdom, China, and the Neth-
erlands. Although no Allied personnel were ever assigned to this
Joint Staff because of the later change of attitude of the Chinese
Government, nonetheless General Stilwell drew his formal authority
in the Chinese military hierarchy from his continuing position as its
Chief. General Stilwell thus served concurrently with General Ho
Ying-chin, who was Chief of Staff of the Chinese Army, as one of
two Chiefs of Staff to the Generalissimo. Under General Stillwell an
extensive program for equipping and training Chinese ground forces
was undertaken in India, and attempts were made to overcome the
reluctance of the Chinese Government to cooperate in such a program
in China.

At these training centers in India large numbers of Chinese ground
forces were equipped, through lend-lease, with the latest types of
American weapons. Some of the personnel thus trained by American
Army officers demonstrated their combat efficiency in operations in
northern Burma beginning in 1943. This program provided not only
complete tactical units but also cadres for the training of Chinese
divisions beyond the mountains in China proper.

Beginning in April 1943, United States Army officers, each of whom
was a specialist in some phase of modern warfare, also operated
training centers for Chinese officers in China. A field-artillery center,
for example, graduated more than 5,000 officers and an infantry cen-
ter, more than 3,000 officers by the end of the year. American officers
also went into the field with units of the Chinese Army to serve as
instructors, advisers, and observers; and American ordnance officers,
with the assistance of Chinese mechanics, engaged in the work of re-
storing worn Chinese equipment. Mention should also be made of
the American field-hospital units which were sent to China and to
northern Burma to aid the Chinese forces, and of United States
Army engineers and other specialists sent to China to help improve
communications and air-base facilities. The United States Army
also cooperated with Chinese forces in the protection of the advancing
Stilwell Road against Japanese attacks.

United States military assistance up to the end of 1943 made pos-
sible much more effective United States- Chinese combined operations,
ground and air, on the Asian continent in the later stages of World
War II. 270

276 For subsequent military aid, see chapter VII.

A CENTUBY OF AMERICAN POLICY

31

FINANCIAL AID 1937-1943 27,1

United States financial aid to China, like lend-lease and other mili-
tary assistance, antedated the Japanese attack on Pearl Harbor. The
Secretary of the Treasury, using the United States Stabilization Fund,
entered into stabilization agreements in 1937 and 1941 to further the
monetary and financial cooperation of the two Governments and the
stabilization of the United States dollar-Chinese yuan rate of ex-
change. In an agreement of July 14, 1937, with the Central Bank
of China, the Secretary of the Treasury agreed to purchase Chinese
yuan up to an amount equivalent to 50 million dollars, with the proviso
that all such yuan purchased were to be fully collateralized by gold.
By February 1938, yuan equivalent to 48 million United States dollars
had been purchased. Repurchase of this amount was completed by
October 1942.

On April 1, 1941, the Secretary of the Treasury entered into a
second agreement with the Government of China and the Central
Bank of China to purchase Chinese yuan up to an amount equivalent
to 50 million United States dollars. This agreement did not provide
for collateralization of such purchases. It was further agreed at this
time that a Stabilization Board be established, to which the Chinese
Government banks were to contribute 20 million dollars. Purchase of
yuan under this agreement amounted to 10 million dollars, and was
repaid in April 1943.

At approximately the same time China concluded a similar agree-
ment with the United Kingdom by which the latter extended to China
a stabilization loan (£5,000,000) to be administered by the same Sta-
bilization Board. Although the Sino- American and the Sino-British
stabilization agreements were technically distinct, it had been agreed
that all stabilization operations were to be carried on by a single Board
composed of five members : three Chinese, one British, and one
American.

On July 26, 1941, only a few months after the establishment of the
Stabilization Board, the President of the United States issued a
freezing order under whose terms the assets of China and Japan in
the United States were placed under the supervision of the Treasury
Department. The freezing of Chinese funds was undertaken at the
specific request of Generalissimo Chiang Kai-shek. The administra-
tion of the controls with respect to Chinese assets was conducted with
a view to facilitating the operations of the Stabilization Board and
otherwise strengthening the foreign trade and exchange position of the
Chinese Government.

27,1 See annex 28 (parts a-ii).

32

U. S. RELATIONS WITH CHINA

Besides aiding China in its efforts at currency stabilization, the
United States extended credits to China through the Export-Import
Bank. In general these were commodity credits which were used to
purchase a considerable variety of American industrial and agricul-
tural products and services. Credits aggregating 18.9 million dollars
were authorized in 1936 and 1937. Four Export-Import Bank credits
were granted between December 13, 1938, and November 30, 1940,
amounting to 120 million dollars. In accordance with the agreements
governing these four credits payment was made in large part by the
sale to the United States of such Chinese products as tung oil, tin,
tungsten, wolframite, and antimony. The credit had been repaid al-
most entirely by June 30, 1949.

Shortly after the United States became a belligerent in World
War II President Roosevelt, in accordance with a request by the
Generalissimo, asked the Congress to extend further financial aid
to China. In a letter to the Congress dated January 31, 1942, the
President declared : “Responsible officials both of this Government and
of the Government of China have brought to my attention the existence
of urgent need for the immediate extension to China of economic
and financial assistance, going beyond in amount and different in form
from such aid as Congress has already authorized. I believe that such
additional assistance would serve to strengthen China’s position as
regards both her internal economy and her capacity in general to func-
tion with great military effectiveness in our common effort.” The
President enclosed a draft of a joint resolution which he urged Con-
gress to pass authorizing the Secretary of the Treasury, with the ap-
proval of the President, “to loan or extend credit or give other financial
aid to China in an amount not to exceed in the aggregate $500,000,000. ”
The joint resolution was promptly passed by Congress and was signed
by the President on February 7, 1942 (Public Law 442). 28 Less than
a week later the money to implement this resolution was appropriated.
The United States and China signed an agreement on March 21,
1942, establishing this amount as a credit in the name of the Chinese
Government. 284

At the time of the extension of this credit the Japanese offensive in
the Pacific and in southeast Asia was in full swing and land communi-
cations with China were being severed. It was important to the
United States that China should be strengthened and encouraged to
continue the war against Japan. Since opportunities for giving

28 For President Roosevelt's message to Generalissimo Chiang immediately upon
the enactment of Public Law 442, see annex 29 (a).

284 For a fuller treatment of this agreement, see annexes 28 and 29 (b).

A CENTURY OF AMERICAN POLICY

33

effective material aid to China, such as was being rendered to Allies
in more accessible areas through lend-lease, were not great, the 500
million dollar credit was characterized by the Secretary of the Treas-
ury as the “finanial counterpart of lend-leasing war materials.”

The funds provided under the agreement of March 21, 1942, were
used by the Chinese Government mainly to purchase gold for sale in
China as an anti-inflationary measure and to provide backing for the
issuance of Chinese Government savings and victory bonds denom-
inated in United States dollars. A total of 220 million dollars was
withdrawn in gold, much of which was shipped to China, principally
during 1945, to be sold internally in an effort to control inflation by
reducing currency in circulation and keeping down the price of gold.

A total of 200 million dollars was reserved for the redemption of
Chinese Government securities issued in United States dollars — 100
million dollars for payment of Chinese United States dollar savings
certificates, and another 100 million dollars earmarked for the payment
of Chinese United States dollar victory bonds. This earmarking was
abandoned in 1946 and the funds became available for imports and
other foreign payments as measures were promulgated governing pay-
ment of foreign currency bonds held in China which provided that such
bonds would be redeemed in Chinese currency. It was also provided,
however, that registered bond-holders outside China would be paid in
foreign currency.

Of the 80 million dollar balance of this loan the sum of 55 million
dollars was spent for the purchase of bank notes in the United States,
and 25 million dollars for textiles imported into China.

The Chinese Government made use of this credit entirely on its
own initiative and discretion. Efforts had been made to incorporate
in the agreement a clause calling for consultation regarding use of the
credit but the United States Government acceded to strenuous objec-
tions by the Chinese on this point. Although Chinese officials did
offer informal assurances regarding consultation, they seldom availed
themselves of the opportunity for United States advice in this regard
and disregarded that which was obtained.

A more detailed treatment of the origin and uses of this credit, and
of other war-time financial relations between the United States and
China, together with pertinent documents, is attached as an annex. 28b

Final determination of the terms upon which this financial aid was
given was deferred, under the agreement of March 21, 1942, until
after the war.

Mb See annex 28.

34

TJ. S. RELATIONS WITH CHINA

RELINQUISHMENT OF AMERICAN EXTRATERRITORIALITY IN
CHINA

Following the outbreak of war between the United States and
Japan, the United States Government took a number of important
steps which demonstrated the desire and intention of the United
States to treat China as an equal among the Major Powers and to con-
tribute to the strengthening of the Chinese nation.

On October 9, 1942, the United States took the initiative and sug-
gested to China that a treaty be negotiated providing for the relm-
quishment of American extraterritorial rights in China and for the
settlement of related questions. Provisions for such action had been
included in the Sino-American Commercial Treaty of October 8,
1903, Article XV of which had provided :

“The Government of China having expressed a strong desire to
reform its judicial system and to bring it into accord with that of
Western nations, the United States agrees to give every assistance to
such reform and will also be prepared to relinquish extra-territorial
rights when satisfied that the state of the Chinese laws, the arrange-
ments for their administration, and other considerations warrant

it in so doing.”

From that time on, it was the established policy of the United States
to move toward relinquishment of American extraterritorial rights
in China, but during the first quarter of the twentieth century condi-
tions did not warrant such action.

The question of a general relinquishment of extraterritorial juris-
diction in China by the Treaty Powers was brought up at the Wash-
ington Conference in 1921-1922. The Conference adopted a resolution
providing for the establishment of a Commission “to inquire into the
present practice of extraterritorial jurisdiction in China, and into
the laws and the judicial system and the methods of judicial adminis-
tration of China” with a view to making recommendations to the
respective Governments regarding the relinquishment of extra-
territoriality. ...

The Commission on Extraterritoriality met in China in 1926. The
Commission reported its findings of fact as a result of its investiga-
tions into the practice of extraterritorial jurisdiction and into Chinese
laws and the Chinese judicial system and recommended improve-
ments in the Chinese legal, judicial, and prison systems. The Com-
missioners expressed the opinion that “when these recommendations
shall have been reasonably complied with, the several Powers would
be warranted in relinquishing their respective rights of extrater-
ritoriality.” Subsequently, the Chinese Government adopted a pro-

A CENTURY OF AMERICAN POLICY

35

gram with regard to the Chinese judicial system and Chinese prisons
directed toward meeting the recommendations of the Commission.

The United States and China entered into active negotiations in
1930 looking toward the relinquishment of American extraterritorial
rights in China. These discussions were far advanced when in 1931
they were suspended as a consequence of the Japanese military occu-
pation of Manchuria, which was followed by Japanese disruptive
activities in China south of the Great Wall in 1932 and 1935. The
United States was giving renewed favorable consideration to the
question of proceeding toward a relinquishment of extraterritorial
jurisdiction in 1937 when Japan commenced its undeclared war by
invading North China and subsequently Central and South China.

From the Japanese invasion of China in July 1937 until the out-
break of war between the United States and Japan in December 1941,
the extraterritorial system operated to the advantage of the United
States, China, and the other countries opposed to Japanese aggressive
activities, by providing protection for recognized treaty rights which
the Japanese effort at monopoly violated. Although conditions did
not favor taking active steps toward relinquishment of extraterritorial
rights in China, the United States policy remained firm that such steps
should be taken as soon as practicable.

This policy was reaffirmed on several occasions by officials of the
United States Government. In a statement to the press on July 19,
1940, the Acting Secretary of State, Sumner Welles, said:

“It has been this Government’s traditional and declared policy and
desire to move rapidly by process of orderly negotiation and agree-
ment with the Chinese Government, whenever conditions warrant,
toward the relinquishment of extraterritorial rights and of all other
so-called ‘special rights’ possessed by this country as by other coun-
tries in China by virtue of international agreements. That policy
remains unchanged.” 29

In reply to a letter from the appointed Chinese Minister for Foreign
Affairs, Dr. Quo Tai-chi, Secretary Hull wrote, on May 31, 1941 :

“As you are also aware, the Government and people of the United
States have long had a profound interest in the welfare and progress
of China. It goes without saying that the Government of the United
States, in continuation of steps already taken toward meeting China’s
aspirations for readjustment of anomalies in its international rela-
tions, expects when conditions of peace again prevail to move rapidly
by processes of orderly negotiation and agreement with the Chinese
Government, toward relinquishment of the last of certain rights of

** See annex 30.

U. S. RELATIONS WITH CHINA

36

a special character which this country, together with other countries,
has long possessed in China by virtue of agreements providing for
extraterritorial jurisdiction and related practices.” 80

The question of the relinquishment of extraterritorial jurisdiction
in China was included in the informal conversations between the
United States and Japan during 1941. The outline of a proposed
basis for agreement between the two countries which the Secretary
of State handed to the Japanese Ambassador on November 26, 1941,
contained the following provision :

“5. Both Governments will give up all extraterritorial rights in
China, including rights and interests in and with regard to interna-
tional settlements and concessions, and rights under the Boxer
Protocol of 1901.

“Both Governments will endeavor to obtain the agreement of the
British and other governments to give up extraterritorial rights in
China, including rights in international settlements and in conces-
sions and under the Boxer Protocol of 1901.”

Immediately after the outbreak of war between the United States
and Japan in December 1941, all energies were directed toward the
prosecution of the war. While the United Nations were suffering
serious military reverses in the Far East it was felt that any action
toward relinquishment of extraterritorial jurisdiction in China would
have been interpreted widely as a gesture of weakness. Even before
the tide of battle in the Pacific turned in favor of the United Nations,
however, the United States in the spring of 1942 started to give active
consideration to the question of relinquishing extraterritoriality in
China before the termination of hostilities.

After the Japanese thrusts into the Central and Southwest Pacific
had been halted and United Nations forces were on the offensive in
the Pacific and Chinese theaters, the United States took the initiative
and suggested to the Chinese Government on October 9, 1942, that a
treaty be concluded to provide for the relinquishment by the United
States of extraterritorial and related rights in China. On October 24,

1942, the Secretary of State handed the Chinese Ambassador in Wash-
ington a draft text of the proposed treaty. Following negotiations
between the two Governments, the treaty was signed on January 11,

1943, and became effective with the exchange of ratifications on May
20, 1943. 81 This treaty, together with a similar Sino-British treaty
which was negotiated at the same time, was warmly approved by
Chinese leaders.

80 See annex 31.

81 See annex 32.

A CENTURY OF AMERICAN POLICY

37

REPEAL OF CHINESE EXCLUSION ACTS, 1943

As a further indication of American policy, the President, on Decem-
ber 17, 1943, signed an Act, which had been passed by large majorities
of both Houses of Congress, removing long-standing legislative dis-
criminations against Chinese. The Act repealed the Chinese ex-
clusion laws, established an annual Chinese immigration quota, and
made legally admitted Chinese eligible to naturalization as American
citizens. The enactment of this legislation had been specifically
recommended by President Roosevelt in order to “correct an historic
mistake” and give “additional proof that we regard China not only
as a partner in waging war but that we shall regard her as a partner
in days of peace.”

AMERICAN ACKNOWLEDGMENT OF CHINA AS A GREAT POWER

American recognition of the status of China as one of the Great
Powers was demonstrated on two other occasions in the fall of 1943.
The United States insisted that China be included as a signatory,
together with the United Kingdom, the U.S.S.R., and the United
States, of the Declaration of Four Nations on General Security, signed
in Moscow on October 30, 1943, which recognized the right and
responsibility of China to participate jointly with the other great
powers in the prosecution of the war, the organization of the peace,
and the establishment of machinery for post-war international co-
operation . 32 The Cairo Declaration, issued on December 1 , 1943, by
President Roosevelt, Prime Minister Churchill, and Generalissimo
Chiang Kai-shek, following their meeting at Cairo, Egypt, in the
latter part of November 1943, declared their “purpose” that “Man-
churia, Formosa, and the Pescadores shall be restored to the Republic
of China .” 33 On his return from the Cairo Conference President
Roosevelt could say, in his Christmas Eve message to the Nation:
“Today we and the Republic of China are closer together than ever
before in deep friendship and in unity of purpose.”

82 Subsequently China participated as a Great Power in the Dumbarton Oaks
conversations in the summer and fall of 1944, and was one of the sponsoring
Powers of the United Nations Conference on International Organization, which
met at San Francisco in 1945, and which formulated the Charter of the United
Nations. The Charter granted China a permanent seat on the Security Council.

“ See annex 33.

CHAPTER II

A Review of Kuomintang- Chinese
Communist Relations, 1921-1944

I. INTRODUCTION

Various internal factors arising from or influencing the course of the
Chinese revolution have played a major role in the growth and devel-
opment of American policy toward China. The rise of Asiatic nation-
alism, the impact of the West, the loss by the decadent Ch’ing Dynasty
of what the Chinese call the “Mandate of Heaven,” and the consequent
struggle for succession to power have all been factors which inevitably
modified and conditioned the efforts of the United States to conduct its
relations with China in accordance with its traditional policies out-
lined in chapter I.

It is impossible here to analyze all these factors ; but it is necessary
at this point, if one is to understand the course and purposes of Ameri-
can actions in China since 1944, to pause and review at least in outline
the long and tortuous relationship between the Kuomintang and the
Chinese Community Party. This struggle for the acquisition and re-
tention of power has played a major role in the internal Chinese scene
for a quarter of a century, even at the expense of the prosecution of the
war against Japan ; it has been utilized by Major Powers in the pursuit
of their own objectives and rivalries and in turn has affected them;
and it has been a significant influence on the course of relations be-
tween China and the various Powers. In the crowded events of the
last few years and the bitter readjustments of the postwar period it is
easy to forget the origins and development of the Kuomintang-Com-
munist struggle for supremacy ; but they must be recalled if one is to
understand and place in proper perspective the course of American
policy since V-J Day. This struggle has had a great effect on Ameri-
can actions and attitudes.

II. BASIC FACTORS

THE KUOMINTANG PROGRAM

The ideological basis of the Kuomintang was formulated by Dr.
Sun Yat-sen during his years of conspiracy against the Manchu

38

A REVIEW OF KUOMINTANG-COMMUNIST RELATIONS 39

regime and was elaborated in various of his writings after the 1911
revolution. Dr. Sun tried to make use of Western thought while con-
structing a solution specifically for China which would retain what he
thought valuable in the Chinese tradition. His program has con-
tinued to form the theoretical basis of Kuomintang political thought.

Dr. Sun conceived of the Chinese revolution as taking place in three
distinct stages: (1) military unification, (2) “political tutelage” and
(3) constitutionalism. 1 The first stage was to be a period of military
dictatorship. As soon as order should be restored, the second stage was
to begin, during which the people were to be trained by the Kuomin-
tang in the exercise of their political rights. Finally, the third stage
of constitutional government was to be reached and the revolutionary
process completed.

The long-term program that Dr. Sun Yat-sen hoped to put into
effect in China was detailed in many of his writings, of which the Sm
Min Chu-I, the “Three Principles of the People,” is the best known.
Briefly, his “Three Principles,” are : (1) min ts’u, or “people’s national-
ism,” under which China would regain her national integrity and
cultural unity; (2) min chSuan, or “people’s democracy,” under which
the people would exercise the “four political powers” (suffrage, recall,
initiative and referendum), by which they control the government,
which in its turn exercises the “five governing powers” (legislative,
judicial, executive, “examination” and censorial) ; and (3) min sheng ,
or “people’s livelihood,” a form of socialism involving equalization
of land ownership, regulation of capital and avoidance of the class
struggle.

Although Dr. Sun was impressed by the Bolshevik success in 1917
and although he accepted the tactical aid and advice of the Third
International, he never subscribed to Communist ideas such as the
class struggle; indeed, he stressed repeatedly that the class struggle
could and should be avoided in China. Dr. Sun invited and accepted
the aid and collaboration of the U.S.S.R., the Third International and
the Chinese Communist Party only with the expressed understanding
that “the Communist order or even the Soviet System cannot actually
be introduced into China” 2 and that “in joining the Kuomintang,

1 Sun Yat-sen, “Outline [Fundamentals] of National Reconstruction” ( Chien
Kuo Ta Kang), given in Leonard Shih Lien-hsu, Sun Yat-sen: His Political and
Social Ideas (Los Angeles, 1933), and in Arthur N. Holcombe, The Chinese Revo-
lution (Cambridge, 1930).

* Joint statement by Sun Yat-sen and Adolph Joffe, representative of Soviet
Russia, in Shanghai, January 1923. See Chinese Ministry of Information, China
Handbook , 1937-1945 (official publication of the Ministry of Information of
the Kuomintang) (New York, The Macmillan Company, 1947), p. 66.

40

U. S. RELATIONS WITH CHINA

Communists of the Third International are to obey Kuomintang
discipline .” * 3

THE COMMUNIST PROGRAM

The Chinese Communist program for the Chinese revolution is based
on the Leninist theories of imperialism and revolution in semi-colonial
countries. Although the theories have undergone changes at the hands
of men like Mao Tse-tung, Chairman of the Central Committee of the
Chinese Communist Party, basically they correspond to the orthodox
concepts of Lenin and Stalin. Innovations introduced by Chinese
Communist theoreticians have concerned details of the revolutionary
time-table and not basic revolutionary principles. The long-term
objectives of Chinese Communism are the orthodox Marxian goals of
socialism and, ultimately, the classless, communist society.

In all countries the “bourgeois-democratic revolution” is considered
by the Leninist theory to be “progressive” within certain limits, and
even to be a prerequisite of eventual socialist revolution. The first
objective of revolution in a colonial or semi-colonial country, however,
is what the Communists call the liberation of the country from im-
perialism and feudalism. During this period even the development
of capitalism is “progressive” but as the “bourgeois-democratic revo-
lution” progresses, inherent class antagonisms will come to the fore
and the bourgeoisie will come to ally itself with imperialism and
feudalism against the working class. At this point, according to Lenin,
collaboration between the bourgeoisie and the working class must cease.
In a frequently quoted passage Lenin said :

“The Communist International should form temporary understand-
ings , even alliances , with the bourgeois democracy of the colonies and
the backward countries, but not merge with it, unconditionally pre-
serving the independence of the proletarian movement, even in its
most embryonic form . . . We, as Communists, must and will support
bourgeois emancipation movements in the colonial countries only in
those cases when these movements are really revolutionary, when their
representatives will not hinder us in educating and organizing the
peasantry and the large masses of the exploited in the revolutionary
spirit .” 4

The Chinese Communist advocacy of democracy during the early
stages of the Chinese revolution must be considered in terms of the

8 Statement by Li Ta-chao, one of the top-ranking Chinese Communists, itod.,

p. 66.

4 E. Burns, Handbook of Marxism (New York, 1935), p. 896. The concluding
sentence is used by Liu Shao-ch’i in his pronouncement “On Nationalism and
Internationalism,” broadcast by the Chinese Communist North Shensi radio, Nov.
9 and 10, 1948. Italics as given in Burns, op. cit.

A REVIEW OF KUOMINTANG-COMMTJNIST RELATIONS

41

theory of “New Democracy” as propounded by Mao Tse-tung accord-
ing to the Leninist formula. The Communist party, he wrote, has a
role to perform even during the “bourgeois-democratic” stage of the
Chinese revolution :

“The first stage of this revolution in colonial and semicolonial coun-
tries — though according to its social nature, it is fundamentally still a
bourgeois-democratic one, of which the objective requirements still
basically call for the clearance of the way to capitalistic development —
yet, despite this, this revolution is no longer the old, wholesale bour-
geois-led revolution for the building of capitalist society and a state
of the bourgeois-dictatorship type, but a new type of revolution, wholly
or partly led by the proletariat, the first stage of which aims at the
setting up of a new democratic society, a new state of the combined dic-
tatorship of all classes. The fundamental character of this revolu-
tion will never vary until the arrival of the stage of Socialist revolu-
tion, though during its progress, it may pass through several minor
stages in accordance with the possible changes in the attitude of
enemies and allies .” 5

The tactics to be followed by the Chinese Communist Party during
the early stages of the revolution are implicit in the Communist anal-
ysis of the nature of the “bourgeois-democratic revolution.” The
Communist Party will in theory ally itself with such parties, groups,
or classes as it considers “progressive,” in order to hasten the revolu-
tion against feudalism and imperialism. But the great fear of the
Communist Party is that it may lose the initiative and the leadership
in the revolution to nationalists, reformers, or social-democrats. Com-
munist tactics in China have steered a precarious course between the
danger of “right opportunism,” through which the initiative is lost,
and that of “left extremism,” which, according to Communist thinking,
prematurely attempts to turn the “bourgeois-democratic revolution”
into a socialist revolution and thus causes the Communists to lose
their influence in the “bourgeois” revolution before the socialist revolu-
tion can be successfully prosecuted.

FOUNDATION OF THE COMMUNIST PARTY, 1921

The first Communist groups in China were formed in Peking in 1919
and 1920 by Ch’en Tu-hsiu and various students, among whom was
Mao Tse-tung. In 1920 at Baku, the Comintern convened a “Congress
of Oriental Nations,” at which China was represented. In May 1921

5 Mao Tse-tung, “China’s New Democracy,” 1940, is included in the appendix to
The Strategy and Tactics of World Communism , Supplement III (H. Doc. 154,
part 3, 81st Cong., 1st sess.).

U. S. RELATIONS WITH CHINA

42

the foundation meeting of the Chinese Communist Party was convened
in Shanghai by Ch’en Tu-hsiu and Li Ta-chao. During the following
months the Chinese Communist Party was organized in various
provinces and cities in China. Other Chinese Communist Groups were
formed among Chinese students in France, Germany, Russia and
Japan. In 1923 the Third Congress of the Communist Party met in
Canton and, in accordance with a previous decision of the Comintern,
decided to enter the Kuomintang and create a “united front” against
the northern militarists.

REORGANIZATION OF THE KUOMINTANG, 1924

Meanwhile Dr. Sun Yat-sen, whose appeals for foreign aid had
gone unanswered except by Russia and whose attempts to unify China
through alliances with southern war-lords had ended in his being
forced to flee from Canton to Shanghai, was carrying on discussions
with Adolph Joffe, a representative of Russia. In January 1923
Dr. Sun and Joffe issued a joint statement setting forth the principles
under which Russia and the Communist International were to aid the
Chinese revolution during the ensuing years :

“Dr. Sun Yat-sen holds that the Communist order or even the
Soviet system cannot actually be introduced into China because there
do not exist here the conditions for the successful establishment of
either communism or sovietism. This view is entirely shared by Mr.
Joffe, who is further of the opinion that China’s paramount and most
pressing problem is to achieve national unification and attain full
national independence, and regarding this task, he has assured Dr.
Sun Yat-sen that China has the warmest sympathy of the Russian
people and can count on the support of Russia.” 8

In partial fulfillment of this pledge of aid to Dr. Sun Yat-sen,
Michael Borodin was sent to Canton in September 1923. Borodin
quickly became the principal Kuomintang adviser. Under his direc-
tion the Kuomintang was reorganized at the First National Party
Congress in January 1924 along the lines of the Russian Communist
Party with centralized control extending from headquarters into the
smallest subdivisions. The Kuomintang was now able to function
with disciplined efficiency for the first time in its history. At the same
Congress it was resolved that Communists who were willing to take
an oath of obedience to the Kuomintang authorities and who accepted
the principles of the Kuomintang should be admitted to the Party as
individuals. Li Ta-chao declared in this connection:

• China Handbook, 1937-1945, p. 66.

A REVIEW OF KUOMINTANG-COMMUNIST RELATIONS 43

“In joining the Kuomintang, communists of the Third Interna-
tional are to obey Kuomintang discipline and to participate in the na-
tional revolution. They have not the slightest intention of turning
the Kuomintang into a communist party. Those Communists who join
the Kuomintang do so as individuals and not on a party basis.” 7

The objectives of the Kuomintang-Communist collaboration were
declared to be the elimination of feudalism (i. e. at that time, the
regime of the northern militarists) and the unification of the country
so that China would be able to stand up against foreign Powers on a
basis of equality.

III. KUOMINTANG-COMMUNIST COLLABORA-
TION, 1924-1927

In collaboration with the Communists and the Comintern advisers,
the Kuomintang was able to accomplish a shift from the tactics of con-
spiracy it had previously employed to those of revolution. The Kuo-
mintang assumed the leadership over the new forces that had been un-
leashed by the spread of nationalism in China. Through the use of
propaganda among the peasant and working masses, the Kuomintang
was able to turn its military campaigns into popular uprisings. Its
army was put under the leadership of officers trained according to
Soviet methods at the newly established Whampoa Academy, and
achieved a degree of efficiency never before equaled in modern China.

Following the death of Dr. Sun Yat-sen in 1925, General Chiang
Kai-shek, director of the Whampoa Academy, became the leading
figure in the Kuomintang. In 1926 he commanded the “Northern Ex-
pedition,” a campaign to unify China by destroying the power of the
warlords in the north. The revolutionary forces, preceded by propa-
ganda corps, made rapid progress, and toward the end of the year the
Kuomintang capital was established at Hankow. A split in the party
between the left wing at Hankow and the right wing under the leader-
ship of General Chiang, however, was becoming increasingly evident.
The latter was anxious to obtain the support of the middle classes,
particularly the commercial and banking community of Shanghai,
while the Communists were attempting to turn the Nationalist revolu-
tion into social revolutionary channels. In April 1927 the Generalis-
simo set up a government at Nanking rivaling that of the left faction of
the Kuomintang which had gained dominance in Hankow. Follow-
ing the capture of Shanghai in March 1927 he carried out a purge of
the Communists in Shanghai, and somewhat later conducted a similar

1 IMd p. 66.

44

U. S. RELATIONS WITH CHINA

one in Canton. These purges involved several hundred thousand
deaths. It should also be remembered that leading figures on both
sides were still in comparable positions twenty years later, which
inevitably added great personal bitterness to the other factors which
complicated the later negotiations.

Meanwhile the position of Borodin and the Communists in Hankow
was becoming more difficult. Conflicting and ill-advised orders from
Moscow, which was at the time in the throes of the Stalin-Trotsky
controversy, did not help the position of the Communists. The crisis
was precipitated when the Kremlin forced the Chinese Communists
to demand majority control of the Kuomintang and separate workers
and peasant armies. Borodin knew better than to present such a
demand, but Roy, the Indian watchdog of the Third International,
went over his head. By July, the Communist cause had collapsed and
Borodin was forced to retire from China, while purges of the Com-
munist element in Hankow were being carried out.

IY. CIVIL WAR, 1927-1936

Although the Communists had been expelled from both wings of the
Party, unity within the Kuomintang was not restored until February
1928 when the Party was reorganized under the control of General
Chiang Kai-shek. In June 1928 Kuomintang forces took Peking,
completing the official unification of China and destroying the power
of the northern warlords. After 1927, the principal obstacle to sta-
bility in China was the existence of Chinese Communist districts and
troops in open rebellion against the National Government of China.

Once they had been purged from the cities and had lost their prole-
tarian base, the Communist leadership concentrated on a small area in
south Kiangisi which remained the remnant of a much larger South
China peasant base. Since the economy of this area was wholly agrar-
ian, Communist tactics shifted to exploitation of peasant difficulties.
This was the forerunner of later Communist expansion and successes.
It also represented the triumph of the Mao Tse-tung faction which
opposed the urban policy of Li Li-san and favored an agrarian em-
phasis. Li Li-san, who had gone to Moscow, was not to return to
prominence until the Russian army brought him to Manchuria in 1945.

In five major “bandit suppression campaigns,” starting in Decem-
ber 1930 and lasting until 1935, the Generalissimo attempted to ex-
terminate the Communist forces in China. These campaigns were
launched as follows: (1) December 1930, under Lu Ti-p’ing; (2) May
1931, under Ho Ying-ch’in; (3) June 1931, under Chiang Kai-shek;

A REVIEW OF KUOMINTANG-COMMUNIST RELATIONS 45

(4) April 1933, under Ch’en Ch’eng; (5) October 1933, under Chiang
Kai-shek.

The fourth and particularly the fifth campaigns were planned with
the assistance of the German military advisers Von Seeckt and after
him Von Falkenhausen. Hundreds of thousands of troops were mo-
bilized by the Nationalists. The campaigns did not succeed in exter-
minating the Communists, but the Generalissimo was able to dislodge
them from their bases in southern China, forcing them to flee to a
base in the northwest in the a long march” of 1934-1935. An incidental
effect of the anti-Communist campaigns was the consolidation of Na-
tionalist political control over many of the provinces that had pre-
viously maintained a degree of regional autonomy.

V. THE KUOMINTANG-COMMUNIST ENTENTE,

1937-1944

BACKGROUND OF THE ENTENTE

While the National Government was engaged in the problem of
suppressing Communism, Japan embarked upon a series of encroach-
ments on Chinese territory, beginning with occupation of Manchuria
in 1931 and leading up to the Marco Polo Bridge incident on July
7, 1937.

The Japanese actions aroused large sectors of Chinese opinion. The
effect of this aggression was similar in many ways to the effect of the
earlier Twenty-one Demands and the insistence by Japan at the Paris
Peace Conference that it be ceded the German rights in the Shantung
peninsula. Again there was an upsurge of nationalism, particularly
after 1935, when the loss of the northern provinces was threatened.
The revival of patriotism included most of politically conscious
China — elements ranging from warlords to students. Resistance
against Japanese aggression became a popular slogan exploited not
only by leftist intellectuals, such as those united in the National Salva-
tion League, but also by dissident militarists.

The Chinese Communists had declared “war” on Japan as early as
1932 while their main force was still concentrated in Kiangsi, hundreds
of miles from the nearest Japanese troops. 8 Although demands for
a “united front” became a factor in the Communist propaganda, the
Chinese Communist Party at first offered no concessions to other
groups to make possible a true “united front” but insisted on retaining

8 See the “Circular Telegram of the Provisional Central Government of the
Soviet Republic of China Declaring War Against Japan/’ given in V. A. Yakhontoff,
The Chinese Soviets (New York, 1934), pp. 236-38.

46

U. S. RELATIONS WITH CHINA

full control over any anti-Japanese coalition. In 1935 the Seventh
World Congress of the Comintern officially proclaimed the new policy
of the “united front” and offered the cooperation of Communist parties
to other groups willing to fight fascism. At that time, the Chinese
Communist Party was criticized because it had “not yet succeeded in
carrying out these tactics [of the united front] really consistently
and without mistakes,” and because the concept of the “united front”
had not been broad enough. The Chinese Communist Party was spe-
cifically censured for failing to unite with the dissident anti- Japanese
militarists who had rebelled against the Nanking government in
Fukien Province in 1933. 10 Following the Congress, the first serious
offers of a “united front” were made to the Kuomintang. In January
1936 s the Chinese Communist Party publicly offered the “hand of
friendship” to Generalissimo Chiang Kai-shek if he would take up
arms against Japan. On August 26, 1936, the Chinese Communist
Party proclaimed to the Kuomintang, “we are prepared to form a
strong revolutionary united front with you as was the case during . . .
the great Chinese Revolution of 1925-1927 . . . [that] is the only
proper way to save our country today.”

Coming at a time of growing patriotic resentment against Japanese
aggression, the stepped-up demands for a “united front” by the Chinese
Communist Party were an effective propaganda weapon for use against
the troops to which the National Government had assigned the task
of “bandit suppression” in northwest China. By the end of 1936 the
army of Chang Hsueh-liang, the former warlord of Manchuria, was
in no mood to fight against the Communist forces. In December 1936
the Generalissimo and his staff visited Sian in Shensi Province to map
out a sixth “Bandit Suppression” campaign. Rather than carry out
Nationalist orders to resume operations against the Communists,
Chang Hsueh-liang decided to “arrest” the Generalissimo. In this
move he was acting in league with the commander of the “Hsipei”
(Northwestern) troops, Yang Hu-ch’eng, and the subordinate com-
manders of both the Hsipei army and his own “Tungpei” (Manchur-
ian) army.

On the day of the coup the commanders of the “Tungpei” and
“Hsipei” armies issued a circular telegram stating the demands of
“national salvation,” consisting of eight points : reorganization of the
Nanking government and admission of parties to share the joint re-
sponsibility of national salvation; end of the civil war and armed
resistance against Japan ; a release of the leaders of the patriotic move-

10 Wang Ming, The Revolutionary Movement in the Colonial Countries, Report
to the VII World Congress of the Communist International , August 7, 1935 (New
York, 1935).

A REVIEW OF KUOMINTANG-COMMUNIST RELATIONS 47

ment in Shanghai; pardon of all political prisoners; a guarantee of
liberty of assembly; safeguard for the people’s rights of patriotic
organization and political liberty ; putting into effect the will of Dr.
Sun Yat-sen; and convening a National Salvation Conference. 11

These points corresponded generally to a program of “national
salvation” advocated by the Communist Party in a telegram issued
earlier in December. They also resembled a manifesto issued by the
“All-China Federation of National Salvation” on May 31, 1936.

The details of the Sian incident have been obscured by the personal
considerations involved in the available accounts. According to one
version, Chang Hsueh-liang and some of his associates considered the
Generalissimo their leader and merely wished to awaken him to the
danger of Japanese aggression, although other more radical officers
of the “Tungpei” army favored executing him. The Chinese Com-
munist Party, whose representatives were called to Sian immediately
after his capture, at first favored the execution of the Generalissimo,
but, apparently on orders from Moscow, shifted to a policy of saving
his life. The Chinese Communist concept, inspired from Moscow,
became one of promoting a “united front” with the Generalissimo and
the National Government against the Japanese; this concept seems to
have played a considerable role in saving the life of the Generalissimo.
At any rate, on December 25, 1936, the Generalissimo returned to Nan-
king, accompanied by his captor Chang Hsueh-liang, who expressed
sentiments of repentance. It seems certain that no agreement between
the Generalissimo and the Communist or Tungpei leaders was signed.
It seems equally certain, however, that an understanding of some kind
was reached by the groups involved. After the Sian incident the
establishment of an entente between the Chinese Communists and the
Kuomintang moved rapidly ahead. 12

The wartime entente between the Kuomintang and the Chinese
Communist Party was never formalized .by a written alliance, but
rested upon a series of parallel documents issued by the two parties, by
which the Kuomintang announced the change in Chinese Government
policy from one of military suppression of communism to that of
seeking a political settlement, and by which the Chinese Communist
Party proclaimed the abandonment of forceful insurrection and sovi-
etization in favor of cooperation with the Government against Jap-
anese aggression. These documents are (1) the telegram from the

11 See annex 34.

“A first-hand account of the Sian incident is given in Mme. Mei-ling (Soong)
Chiang, China at the Crossroads ; an Account of the Fortnight in Sian , when the
Fate of China Hung in the Balance (London, Faber and Faber, 1937) . This work
was also published with varying titles in New York and Shanghai.

48

U. S. RELATIONS WITH CHINA

Central Committee of the Chinese Communist Party to the Third
Plenary Session of the Kuomintang Central Executive Committee on
February 10, 1937 ; (2) the resolution of February 21, 1937 of the Third
Plenary Session of the Kuomintang Central Executive Committee;
(3) the manifesto of September 22, 1937 by the Central Committee
of the Communist Party; and (4) the statement on the following day
by Generalissimo Chiang Kai-shek commenting on the Communist
manifesto.

THIRD PLENARY SESSION OF THE KUOMINTANG CENTRAL
EXECUTIVE COMMITTEE, 1937

Shortly after the return of the Generalissimo from Sian, the Third
Plenary Session of the Fifth Central Executive Committee of the
Kuomintang was held in Nanking. On February 10, 1937, five days
before the session opened, the Central Committee of the Chinese Com-
munist Party addressed a telegram to the session which recommended
a program including the suspension of civil war and the concentration
of the national strength against external aggression, a guarantee of
civil rights, the calling of a “national salvation” conference, the prep-
aration for armed resistance and improvement in living conditions
of the people. If these points were approved, the Communist Party
declared itself prepared to make certain alterations in the policies
that had characterized its activities :

1. to stop the program of armed uprisings throughout the country
for the overthrow of the National Government in Nanking;

2. to change the Chinese Soviet Government into the Government of
the Special Region of the Republic of China and the Red Army into the
National Revolutionary Army under the direct leadership of the
Military Affairs Commission in Nanking;

3. to enforce the democratic system of universal suffrage within
the special regions under the regime of the Government of the Special
Regions ;

4. to put an end to the policy of expropriating the land of the
landlords and to execute the common program of the anti- Japanese
united front. 13

The question of reconciliation with the Communists was dealt with
at length by the Third Plenary Session in a resolution passed on
February 21, 1937. The resolution reviewed the original leniency of
Sun Yat-sen in admitting Communists to the Kuomintang in 1924

13 Text in New China (Yenan, Mar. 15, 1937). See annex 35.

A REVIEW OF KUOMINTANG-COMMUNIST RELATIONS 49

and their “subsequent treasonable and rebellious activities” up to the
time of the session, when the “Communist bandits, reduced to straits
in the Northwest, have begun to announce alleged willingness to sur-
render.” The resolution stated that the Kuomintang would give the
Communists a chance to “reform” on four conditions :

1. Abolition of the separate army and its incorporation into the
united command of the nation’s armed forces.

2. Dissolution of the so-called “Chinese Soviet Republic” and simi-
lar organizations and unification of the government power in the
hands of the National Government.

3. Absolute cessation of Communist propaganda and acceptance of
the Three People’s Principles.

4. Stoppage of the class struggle. 14

These points corresponded closely to the changes in policy the
Communist Party had declared itself willing to make. After having
laid down the conditions on which the Communists would be per-
mitted to “start life anew”, the session in its closing manifesto blamed
the Communists for terroristic activities since 1927, “thus undermining
the nation’s strength which otherwise would have been employed in
resisting the invader.” The cardinal policy of the Kuomintang was
declared to be the eradication of the Communist scourge. However,
the achievement of unity through peaceful means was to be the guiding
principle, although the Chinese people were warned against the
fallacious theories of the class struggle. 15

These documents established the basic conditions for the entente.
During the ensuing months negotiations betwen the parties continued.
Chou En-lai held discussions with the Generalissimo and other
Kuomintang officials at Ruling, summer capital of China. Other
meetings were held within Chinese Communist territory.

Many of the conditions of the entente were implemented during the
course of the negotiations. The civil war ceased. The Com-
munist policies of land confiscation were suspended, and Communist
propaganda was preparing the people for the united front. The
Kuomintang was making active preparations for increased democra-
tization, including the calling of a People’s National Congress for
November 1937 to inaugurate a new constitution. 16 Many, though
by no means all, of the political prisoners held by the Kuomintang
were released.

14 The China Year Book , 1988 , pp. 532, 470; China Handbook, 1987-1945, p. 66.

15 China Handbook, 1987-1945, p. 66.

- 18 Because of the war and repeated postponements this Congress did not meet
until November 1946.

50

XT. S. RELATIONS WITH CHINA

MANIFESTO OF THE CHINESE COMMUNIST PARTY, SEPTEMBER
22, 1937

Apparently public announcement of the entente was originally
scheduled for the middle of July 1937, when a Chinese Communist
manifesto was handed to the Kuomintang, declaring that Chinese
unity had been restored for the purpose of resisting Japan. Publica-
tion of the manifesto was delayed until September 22, 1937, because of
the outbreak of hostilities with Japan after the Marco Polo Bridge
incident of July 7, 1937.

The manifesto of the Central Committee of the Communist Party,
published on September 22, 1937, stated that the Communist Party had
“on the basis of peace and national unity and joint resistance against
foreign aggression, reached an understanding with the Kuomintang”
and proposed the following objectives:

“(1) Struggle for the independence, liberty and emancipation of
the Chinese nation by promptly and swiftly preparing and launching
the national revolutionary campaign of resistance. . . .

“(2) Enforce democracy based on the people’s rights and convoke
the National People’s Congress in order to enact the Constitution and
decide upon the plans of national salvation.

“(3) Improve the well-being and enrich the livelihood of the
Chinese people. . .

The manifesto expressed the belief that the whole country would
support these objectives, although the program would meet with
numerous difficulties, particularly from Japanese imperialism, and
declared :

“(1) The San Min Chu-I enunciated by Dr. Sun Yat-sen is the
paramount need of China today. This Party is ready to strive for
its enforcement.

“(2) This Party abandons its policy of overthrowing the Kuomin-
tang of China by force and the movement of sovietization, and dis-
continues its policy of forcible confiscation of land from landowners.

“(3) This Party abolishes the present Soviet Government and will
enforce democracy based on the people’s rights in order to unify the
national political machinery.

“(4) This Party abolishes the Red Army, reorganizes it into the
National Revolutionary Army, places it under the direct control of
the National Government, and awaits orders for mobilization to share
the responsibility of resisting foreign invasion at the front.” 17

1T Full text given in annex 36.

A REVIEW OF KUOMINTANG-COMMUNIST RELATIONS 51

STATEMENT BY GENERALISSIMO CHIANG KAI-SHEK,
SEPTEMBER 23, 1937

On September 23, 1937, the day following the publication of the
Communist manifesto, the Generalissimo issued a formal statement
welcoming the change in Communist policies :

“The Manifesto recently issued by the Chinese Communist Party
is an outstanding instance of the triumph of national sentiment over
every other consideration. The various decisions embodied in the
Manifesto, such as the abandonment of a policy of violence, the cessa-
tion of Communist propaganda, the abolition of the Chinese Soviet
Government and the disbandment of the Red Army are all essential
conditions for mobilizing our national strength in order that we
meet the menace from without and guarantee our own national
existence.

“These decisions agree with the spirit of the Manifesto and resolu-
tions adopted by the Third Plenary Session of the Kuomintang. The
Communist Party’s Manifesto declares that the Chinese Communists
are willing to strive to carry out the Three Principles. This is ample
proof that China today has only one objective in its war efforts.” 18

IMPLEMENTATION OF THE AGREEMENTS, 1937-1938

During 1937 and 1938 a number of concrete steps were taken to
implement the entente and to further the united resistance against
the Japanese invasion. By order of the National Government the
Chinese Communist Army was reorganized as the Eighth Route Army,
and later into the 18th Group Army, with the Communist generals Chu
Teh and P’eng Te-huai as commander and vice-commander, and Lin
Piao, Ho Lung, and Liu Po-ch’eng as division commanders. The
Eighth Route Army was designated to garrison the area of the Shensi-
Kansu-Ninghsia (Shen-Kan-Ning) border region, the former Com-
munist area. Shortly afterwards the Communists, whose area of con-
trol was expanding as a result of their guerrilla warfare efforts,
established the Shansi-Chahar-Hopei (Chin-Cha-Chi) border region
government under the National Government. The Chin-Cha-Chi
regional government received the sanction of the National Government
in J anuary, 1938 ; it was the only Communist-dominated local govern-
ment to receive such formal sanction. During the first three years of
the entente the Communist armies received a monetary subsidy from
the National Government, as well as a small allotment of ammunition.

In addition the National Government carried out a number of
measures regarding civil rights and greater democratization, although

“ Full text in annex 37.

52

U. S. RELATIONS WITH CHINA

due to wartime conditions it did not call the National Assembly into
session to act on a new Chinese constitution. The Communist Party
was permitted to publish its own newspaper, the Hsin Hua Jih-Pao
(New China Daily ) in Hankow. 18a Chou En-lai was one of the seven-
teen members of the presidium of the Extraordinary National Congress
of the Kuomintang in March 1938 and was appointed Vice-Minister
of the Political Training Board of the National Military Council, a
position he held until 1940.

Among the more important steps towards increased democracy aAd
freedom of discussion taken by the Kuomintang during this period was
the creation by the Extraordinary National Congress of the Kuomin-
tang in March 1938 of the People’s Political Council (PPC), with
powers to discuss and question all important Government measures and
to make proposals to the Government. Although the People’s Political
Council was purely advisory, the prestige of its members and the
caliber of its discussions made it a significant body.

The most important policies of this period are embodied in the
“Program of Armed Resistance and National Reconstruction,” which
was adopted by the Kuomintang Party Congress on April 1, 1938, and
subsequently by the People’s Political Council. The “Program” was
accepted by both the Kuomintang and the Chinese Communist Party
as the basic outline of principles to be followed by the wartime entente,
subsidiary only to the San Min Chu-I (Three People’s Principles). 19
The Program pledged China to play a just role in world affairs, urged
intensified military activity, called for governmental reforms, in-
creased economic growth and the organization of the people.

The period during which the National Government was located at
Hankow marked the high point of Kuomintang-Communist coopera-
tion. In spite of continued defeats of the Chinese armies by Japan,
the solidarity of the Chinese people created a spirit of optimism. The
Generalissimo emerged as the symbol of national unity and of eventual
victory.

DETERIORATION OF KUOMINTANG-COMMUNIST RELATIONS,
1938-1941

In the latter half of 1938 relations between the Kuomintang and the
Chinese Communist Party began to deteriorate. At the end of August
the Hankow- Wuchang Defense Headquarters outlawed three Com-
munist-sponsored mass organizations because it feared the Com-
munists would use them to gain influence in Nationalist territory.

188 This Communist paper continued to be published in Nationalist territory
throughout the war.

19 Text is given in China Handbook, 1987-1945, pp. 61-62.

A REVIEW OF KUOMINTANG-COMMUNIST RELATIONS 53

After the fall of Hankow in October 1938 Communist-Kuomintang
relations worsened steadily. More Communist organizations were
suppressed. The Communists were attacked for failing to yield con-
trol over their area in Shensi Province to the National Government,
and for not allowing the National Government to exercise direct com-
mand over the Communist armies in the field and to direct their
training.

In the following years relations between the two parties remained
strained, and charges and countercharges of failure to abide by the
promises of 1937 became increasingly violent, often leading to local
clashes between Chinese National and Communist forces. The one
policy common to both parties was resistance against the Japanese
invasion, and even this was often neglected amid the jockeying for
advantage between the two parties. However the resumption of open
hostilities on a large scale was avoided. During 1939 the National
Government, at that time located in Chungking, began to enforce a
rigid military blockade of the Communist areas to prevent Communist
infiltration into Nationalist China. The expansion of Communist
military forces into areas outside the regional defense zones assigned
them by the National Government led to incidents and continuous
skirmishes between the Communists and Nationalists. The arguments
and fighting over the demarcation between Communist and Nationalist
military zones culminated in the “New Fourth Army Incident” of
January 1941, the most serious wartime clash between Nationalist
and Communist armies and the real beginning of civil strife. The
fighting reached such proportions that it received world-wide atten-
tion. The Government version of the incident was that it had issued
orders for the Communist New Fourth Army to move north of the
Yangtze and engage the Japanese in the Yellow River area, but the
orders had been ignored because the Communists wished to expand
their holdings in the south. For reasons of discipline it was therefore
necessary to disarm them. It was the Communist contention that the
Government purpose was to restrict Communist areas and at the same
time place the New Fourth Army in a hopeless military position.

KUOMINTANG-COMMUNIST NEGOTIATIONS, 1941-1944

In spite of the frequent military friction between the Communist
and Nationalist forces, the Government policy remained that of seek-
ing a political settlement with the Communists. On March 6, 1941,
in a reference to the “New Fourth Army Incident” in a speech to the
People’s Political Council, the chief arena in which attempts were
made to settle the issue between the Communists and Kuomintang, the
Generalissimo said:

54

U. S. RELATIONS WITH CHINA

. . the Government is solely concerned with leading the nation
against the Japanese invaders and extirpating the traitors, and is
utterly without any notion of again taking up arms to ‘suppress the
Communists.’ . . . Provided unity can be preserved and resistance
carried on to the end, the Government will be ready to follow your
direction [i. e., the directions of the PPC] in the settlement of all
outstanding questions.” 20

No settlement was reached between the Kuomintang and the Chinese
Communist Party, however, and the relations between the two armies
continued strained, with periodic fighting, while at the meetings of
the People’s Political Council a group of minor parties continued at-
tempts at mediation. These minor parties had formed the “United
National Construction League” 21 at the end of 1939, with the principal
object of preserving Kuomintang-Communist cooperation. Minor
parties played an important, if unsuccessful, role in the negotiations
between the Communists and the Kuomintang prior to the offer of
American good offices in 1944 by Major General Patrick J. Hurley,
the Personal Representative of President Roosevelt.

Attempts to settle the Kuomintang-Communist differences were not
limited to discussions and statements before the PPC. On a number
of occasions direct negotiations between Communist and Nationalist
officials took place. The first of these occasions was the talks between
General Ho Ying-ch’in, Minister of War in the National Government,
and Chin Pang-hsien (Po Ku), a member of the Chinese Communist
Party’s Central Committee, early in 1940.

In September 1943 the Generalissimo gave explicit instructions to
the Eleventh Plenary Session of the Fifth Central Executive Commit-
tee of the Kuomintang that the Chinese Communist problem should be
handled by peaceful means :

“After hearing the Secretariat’s report on the question of the Chi-
nese Communist Party and the views expressed by various members
of the Central Executive Committee, I am of the opinion that first of
all we should clearly recognize that the Communist problem is a purely
political problem and should be solved by political means. Such
ought to be the guiding principle for the Plenary Session in its effort
to settle this matter.” 22

Following the Eleventh Plenary Session, Communist General Lin
Piao conducted negotiations in Chungking during November 1943 on
the reorganization of the Communist forces.

20 This speech is given in full in annex 38.

21 This League went through several reorganizations and finally became known
as the Democratic League.

22 The full text is given in annex 39.

A REVIEW OF KUOMINTANG-COMMUNIST RELATIONS 55

More comprehensive discussions between representatives of the
Chinese Government and the Chinese Communist Party began in Sian
on May 4, 1944. The Government was represented at these talks by
General Chang Chih-chung of the National Military Council and Dr.
Wang Shih-chieh, then Minister of Information. The Communists
were represented by Lin Tzu-han, an important member of the Central
Committee of the Chinese Communist Party. Chang, Wang and Lin
returned to Chungking on May 14, 1944, and continued the negotia-
tions through an exchange of memoranda until September, when the
negotiations were discussed in detailed reports to the PPC by Chang
Chih-chung and Lin Tzu-han.

During these discussions the following major points were brought
up:

1. The disposition, size, command, and training of the Communist
armies.

2. The relationship between Communist-organized regional govern-
ments and the National Government.

3. Problems connected with civil rights and especially the legaliza-
tion of the Communist Party and its activities in Nationalist areas.

Incidental to these points a number of problems arose which were
connected with the implementation of various pledges made by the
Communist Party and the Kuomintang throughout the period of
Kuomintang-Communist entente. During these discussions the ques-
tion of constitutional government arose, and suggestions for “coalition
government” were brought forth for the first time.

Although no settlement was reached on the basis of these discussions,
it is clear that from May to September 1944 the Chinese Government
and the Chinese Communist Party were seeking a peaceful settlement
of their disputes through political negotiations. 23

THE WALLACE MISSION, 1944

During the spring of 1944, President Roosevelt appointed Vice
President Henry A. Wallace to make a trip to China to see what he
could do toward consolidating the Chinese war effort against J apan.
Mr. Wallace took this opportunity to visit Soviet Central Asia for a
brief inspection of agricultural developments, and arrived in Chung-
king the latter part of June. In the course of this visit Mr. Wallace
had several long conversations with the Generalissimo on matters of
mutual interest. The notes made on these conversations indicate that

23 See annexes 40, 41, and 42.

U. S. RELATIONS WITH CHINA

56

a wide range of topics was discussed of which the majority have no
bearing on the events and issues described in this present paper. 24

In a conversation on June 21 with the Generalissimo, Mr. Wallace
stated that the President had indicated to him that if the Kuomintang
and the Communists could not get together they might “call in a
friend”. The President had indicated that he might be that friend.
John Carter Vincent, in a conversation the next morning, said that
Stalin had agreed with Ambassador Harriman in Moscow that support
of the Generalissimo was desirable during the prosecution of the war
and expressed keen interest in a settlement between the Kuomintang
and the Communists, basing his interest on the practical matter of more
effective fighting against Japan rather than upon any ideological
considerations, and adding that he felt the United States should assume
a position of leadership in the Far East.

During a conversation on the afternoon of June 22, the General-
issimo launched into a lengthy complaint against the Communists,
whose actions, he said, had had an unfavorable effect on Chinese
morale. He added that the Chinese people regarded them more as
internationalists than as Chinese, despite the nominal dissolution of
the Third International. He then added that the Communists desired
the breakdown of Chinese resistance against J apan because this would
strengthen their own position. They did not fear such a development
because they were now convinced that Japan would be defeated
without Chinese resistance. The Generalissimo deplored propaganda
to the effect that they were nothing more than agrarian democrats
and remarked that they were more communistic than the Russians.
He said that a settlement with the Communists would be simple if
they would agree to support the Government and accept a peaceful
and political role in the administration of the country. He urged
that the United States maintain an attitude of “aloofness” toward
the Communists which would encourage them to show a greater
willingness to reach a settlement with Kuomintang. The Foreign
Minister, who was present at the conversation, interposed at this stage
to say that whereas the Government required the Communists to sub-
mit to its authority, it was not its intention to interfere in local ad-
ministration or remove officials or army officers who showed themselves
to be cooperative. In conclusion, the Generalissimo said that he
understood the policy of President Roosevelt and requested that the

24 See annexes 43 and 44, for summary notes of these conversations made by
John Carter Vincent, then Chief of the Division of Chinese Affairs of the Depart-
ment of State, who accompanied the Vice President to China. The Department
is not aware of any written record which Mr. Wallace himself may have made.

A REVIEW OF KUOMINTAN G-COMMUNIST RELATIONS 57

President be informed that he, the Generalissimo, desired a political
solution of the Communist problem.

It was in a conversation on the following morning, June 23, that
the Generalissimo suddenly reversed his previous refusal to permit
Americans in Communist territory and agreed that an American
military observer mission could proceed. 25 Later in the conversation
the question of Russia again rose. Mr. Wallace stressed the point that
no situation should be permitted in China which might lead to conflict
with Russia. The Generalissimo agreed and added that anything
not detrimental to Chinese sovereignty would be done to avoid such
a conflict. Mr. Wallace again said that the United States could not
be expected to be a party to any negotiations. The Generalissimo ex-
pressed his concurrence and said that China would seek an early
opportunity for discussions with Russia. In another conversation
later in the day, the Generalissimo asked that the following message
be conveyed to the President : “If the United States can bring about
better relations between the U. S. S. R. and China, and can bring about
a meeting between Chinese and Soviet representatives, President
Chiang would very much welcome such friendly assistance.” 26

During the ride to the airport on June 24, the Generalissimo twice
expressed his appreciation that Mr. Wallace, as a representative of
President Roosevelt, should lend his efforts for the improvement of
Sino-Soviet relations. The Generalissimo also said he would wel-
come the assistance of the President in the settlement of the Com-
munist problem, even though it was an internal one. He also
expressed his conviction that the Communists were not men of good
faith, but that if the President were willing to take the risk of helping
he would be happy to have such assistance and would not consider it
as meddling in internal affairs.

CONCLUSION

In September 1944 the negotiations went into a new phase with the
arrival of General Hurley as the Personal Representative of the Presi-
dent of the United States with the mission of promoting harmonious
relations between Generalissimo Chiang and General Stilwell, and of
performing certain other duties in connection with military supplies.
It was only a few months later after the termination of the original

25 Unsuccessful attempts had been made previously by the United States Army to
secure Chinese permission for an observer group to go to Communist territory.
On June 22 Mr. Wallace mentioned the subject and received an evasive answer
from the Generalissimo.

26 These views should be considered in connection with chapter IV.

58

U. S. RELATIONS WITH CHINA

mission that the Kuomintang-Communist struggle, with the entrance
of the United States on the scene, due to the need for prosecuting the
war against Japan, took on an international aspect, which it had not
possessed since the expulsion of the Russian Mission in 1927. The
intervening seventeen years of bitter civil war and subsequent reluctant
cooperation, under external threat, had created deep-seated hatreds,
suspicions, differences of approach and objective, and a reluctance to
forget the past which, more severely than was perhaps realized at the
time, limited what could usefully be contributed by outside assistance.

CHAPTER III

The Ambassadorship of Major General
Patrick J. Hurley, 1944—1945

I. IMMEDIATE BACKGROUND OF THE HURLEY

MISSION

INTRODUCTION

Major General Patrick J. Hurley was appointed Personal Repre-
sentative of the President to China on August 18, 1944. He arrived
in Chungking on September 6, 1944. Mr. Clarence E. Gauss resigned
as Ambassador to China on November 1, 1944, and General Hurley was
nominated for the position on November 30, 1944. He presented his
credentials on J anuary 8, 1945.

To understand the reasons for the mission of General Hurley to
China it is necessary to take into account the conditions which existed
internally in China in 1943 and 1944. As indicated above, the Chinese
record of opposition to Japanese aggression had been a distinguished
and enviable one which commanded the admiration and sympathy of
all peoples throughout the world who were opposing aggression. By
1943, however, the devitalizing effects of six years of war were begin-
ning to make themselves felt. This trend in 1944 became pronounced
to an alarming degree.

The long years of war were taking a heavy economic toll. Many
of the most productive areas of China had been occupied by Japan.
Inflation began to set in and the new Chinese middle class which had
been the backbone of Kuomintang liberalism found itself being pro-
gressively beggarized. In this situation the extreme right wing and
reactionary elements in the Kuomintang came to exercise increasing
power and authority. The regular and periodic political reports of
the Embassy in Chungking indicated a steady deterioration in the
economic situation and a growing paralysis within the governmental
administrative hierarchy. It was symptomatic that the Embassy
reported that the Twelfth Plenary Session of the Fifth Kuomintang

59

60

U. S. RELATIONS WITH CHINA

Central Executive Committee had met in May 1944 but apparently
accomplished little and had resulted in a serious setback for liberal
elements in the Party. The Embassy also reported that liberal
elements in the Party were discouraged by the trend but hoped that
developments would support their contention that Kuomintang leader-
ship was bankrupt.

The protracted background of developments outlined in chapter
II contributed to the particular state of relations between the
Chinese Communists and the National Government which existed
when General Hurley embarked on his mission. As has already been
pointed out, following the Sian incident in late 1936 the Chinese Na-
tional Government and the Chinese Communist Party had indicated
their intention to present a united front against the Japanese invaders
and to settle their differences by political means. Negotiations be-
tween the Communists and the National Government had been pro-
ceeding over a period of seven years prior to General Hurley’s mission
to China. In his instructions to the Eleventh Plenary Session of the
Fifth Central Executive Committee of the Kuomintang held in Sep-
tember 1943, the Generalissimo had stated that he was of the opinion
that “first of all we should clearly recognize that the Chinese Com-
munist problem is a purely political problem and should be solved by
political means”, 1 that is, through negotiations rather than through
force. Accordingly, in the spring of 1944, active negotiations had been
conducted at Sian by the National Government represented by Dr.
Wang Shih-chieh and the Chinese Communist Party represented by
Lin Tsu-han.

Despite the announced intention of the Chinese Government and
the Chinese Communist Party to seek a political, that is a negotiated,
solution of their differences, and notwithstanding the fact that negotia-
tions were being actively conducted to that end, the Chinese military
effort against Japan was increasingly handicapped by internal dis-
unity.

In a conversation on July 3 with an officer of the Embassy, Dr.
Sun Fo, President of the Legislative Yuan, said he had discussed the
situation frankly with the Generalissimo. He had told him that the
Chinese armies must be rehabilitated if they were to be effective. He
also pointed out that one of the principal obstacles to effective prose-
cution of the war was the immobilization of some 300,000 of the
Government’s best troops to watch the Chinese Communists. This
factor, he said, also immobilized large Chinese Communist forces
which had fought well against Japan and could do so again. Dr. Sun
said he had told the Generalissimo that the Chinese Communists did

1 China Handbook, 1987-1945 , P. 67.

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 61

not want to communize or dominate China, that it would in any case
be impossible for them to do so and that what they wanted was a
settlement which would enable them to cooperate with the Nationalist
Government against Japan. Dr. Sun added to the Embassy officer
that the Generalissimo was used to making decisions himself and not
taking advice. Dr. Sun felt, however, that his remarks had had some
effect and that the Generalissimo was actually seeking in his own
mind for means of reorienting some of his ideas. Dr. Sun felt that
American opinion could be of assistance in this process if it did not
appear to be bringing pressure on the Generalissimo.

However discouraged other elements may have been by the internal
deterioration and stalemate in the Chinese war effort against Japan,
no such note appeared in the words or actions of the General-
issimo. In his Double Tenth speech of October 10, 1944, he reiterated
his determination to fight to the end and to preserve his leadership in
the struggle for the consolidation of China. He also showed himself
sensitive to foreign criticisms of internal developments and in a rather
ominous note implied that foreign powers would be well advised not to
interfere in the internal affairs of China, particularly in the relations
of the National Government with the Chinese Communists.

The foregoing considerations were repeatedly reflected in the reports
made in 1944 by the American Ambassador, Mr. Gauss. As he often
emphasized, these factors were having a disastrous effect upon the
Chinese effort in the war against Japan. His comments and obser-
vations were substantiated by periodic reports he received from Ameri-
can consular officials in such widely diversified areas as Fukien,
Kweilin, Kunming, Chengtu, Sian and Lanchow.

Other American observers in China were becoming increasingly
apprehensive over the fact that neither the Chinese Government nor
the Chinese Communists were directing their main efforts against
Japan. Congressman Mansfield in January of 1945 in his report to
Congress following his return from his mission to China summarized
this opinion: “On the basis of information which I have been able
to gather, it appears to me that both the Communists and the
Kuomintang are more interested in preserving their respective Parties
at this time and have been for the past two years than they are in
carrying on the war against Japan. Each Party is more interested
in it own status because both feel that America will guarantee victory.”

CHINESE UNITY AND THE WAR EFFORT

Ambassador Gauss had emphasized this point of view in a conver-
sation with the Generalissimo on August 30, 1944. 2 He reported that

* See annex 45.

U. S. RELATIONS WITH CHINA

62

the Generalissimo had sent for him and had discussed the Chinese
Communist problem for an hour and a half, saying that Washington
did not understand the problem and it was the duty of the Ambassador
to see that it did. In addition to making charges of bad faith and
treachery against the Chinese Communists, General Chiang stated that
the attitude of the American Government in urging China to resolve its
differences with the Chinese Communists served only to strengthen the
latter in their recalcitrance. He said that the Communist demands
were equivalent to asking the Government to surrender unconditionally
to a party known to be under the influence of a foreign power. He
added that the United States should tell the Communists to settle their
differences with and submit to the N ational Government. Ambassador
Gauss stated that, being assured that he might speak frankly and
openly, he was able to emphasize that the American Government was
not interested in the cause of the Chinese Communists but that it was
interested in seeing a solution of a Chinese internal problem which
found Chinese armed forces facing each other rather than facing and
fighting the Japanese and that this was of outstanding importance
in that critical period of the war- He expressed his complete sym-
pathy with the difficult task facing the Generalissimo in the solution
of the Chinese Communist problem and added :

“We have not suggested that the Chinese Government should capit-
ulate to Communist demands. Our interest is solely in the unification
of China and the dissipation of the present critical situation. Our
hope is that a peaceful solution can be found to this problem by the
Chinese themselves.”

The Ambassador reported that he made the personal observation
that while the Generalissimo said that the Chinese Communists were
not to be trusted, the Embassy had long heard the Chinese Com-
munists complain equally that the Kuomintang Government could not
be trusted. It seemed to him that an effort should be made to dissi-
pate this mutual mistrust and that it was his personal opinion that a
solution might be found in some measure which would bring the most
competent representatives of the several groups and parties to partici-
pate in and share the responsibilities of the Government. He was of
course aware of the Kuomintang contention that there could at that
time be one-party government only. He indicated, however, that he
would like to see the difficulty overcome. Even if it could not be over-
come on a broad basis to give representation in the Government to
minor parties, perhaps a limited solution might be found under which
able representatives of the parties or special groups might be provided
for, with these persons being invited to share in some form of responsi-
ble war council which planned and carried out plans to meet the serious

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 63

war crisis taking place in China. In conclusion the Ambassador said
that in such sharing of responsibility perhaps there could be developed
a disposition toward cooperation for unification of China. The Gen-
eralissimo commented that this suggestion might at least be worth
studying.

In response to the Ambassador’s report of this conversation, Secre-
tary of State Hull informed Mr. Gauss that the President and he had
given careful consideration to the report and agreed that a “positive,
frank, and free approach to Chiang on the subject of governmental
and related military conditions in China should be made at this time.”
The Secretary indicated that the Generalissimo’s suggestion that the
Chinese Communists should be told to settle their differences with the
Government was similar to his previous suggestion to Vice President
Wallace and that the general argument of the Generalissimo as set
forth to the Ambassador showed a discouraging lack of progress in the
thinking of the Generalissimo in view of his own professed desire to
reach a settlement with the Chinese Communists and in view of dis-
sident developments in other areas not under Chinese Communist
influence. The Secretary then suggested that the Ambassador might
tell the Generalissimo that if the latter would arrange a meeting the
Ambassador would be prepared to speak to the Communist represent-
ative in Chungking along the same general lines as the Ambassador
and the Vice President had spoken to him ; that the Ambassador would
point out to the Communist representative that unity in China in
prosecuting the war and in preparing for the peace was urgently neces-
sary ; that a spirit of tolerance and good will — of give and take — was
essential in achieving such unity; that Chinese of every shade of
political thinking should cooperate now to defeat the J apanese ; and
that differences could be settled if the major objective of victory was
kept firmly in mind. The Ambassador was requested to inform
Chiang (1) that the President and the Secretary felt that Mr. Gauss’
suggestion for a coalition council was deserving of careful considera-
tion; (2) that they were concerned, not only regarding non -settlement
with the Chinese Communists, but also with regard to reports of dis-
content and dissidence in other parts of the country among non-
Communist Chinese; (3) that they were not interested in the Com-
munists or other dissident elements as such, but were anxious that the
Chinese people develop and utilize, under the leadership of a strong
representative and tolerant government, the physical and spiritual
resources at their command in carrying on the war and establishing
a durable democratic peace. 3

* See annex 46.

64

U. S. RELATIONS WITH CHINA

PESSIMISM OF AMBASSADOR GAUSS

Although Ambassador Gauss transmitted this message to Chiang
Kai-shek, he doubted that the Generalissimo would take the necessary
steps or was even capable of doing so. He was also pessimistic over
the prospects for negotiation with the Communists in view of the deep
suspicion on both sides and inability to recognize realities. He even
questioned the Chinese desire to cooperate actively in the war against
Japan. The reports from the Embassy during October and early
November present a depressing picture of a deteriorating situation,
characterized by internal squabbles and apathy.

The discouraging conclusions of Ambassador Gauss were further
reinforced from a source other than the Embassy or the Consulates.
Several Foreign Service officers, all specialists in the Far East, at
the request of the United States Army, were attached to the staff of
the Commanding General of the China-Burma-India (later China)
Theater for liaison duties. These officers had a unique opportunity,
through travel and contacts with American and Chinese Military
authorities, to observe conditions and report their reactions. These
reports were made available to American officials concerned. The
memoranda of these officers were prepared on a wide range of subjects
and during a period of over two years, from early 1943 to early 1945,
when the end of the war with J apan was not yet recognized as immi-
nent. They show the development of the following themes :

1. Russian intentions with respect to the Far East, including China,
are aggressive.

2. The Chinese Communists have a background of subservience to
the U. S. S. R., but new influences — principally nationalism — have
come into play which are modifying their outlook.

3. The Chinese Communists have become the most dynamic force
in China and are challenging the Kuomintang for control of the
country.

4. The Kuomintang and National Government are disintegrating.

5. The rivalry between these two forces threatens to culminate in a
civil war which (a) would hamper the conduct of the war against
Japan, (b) would press the Communists back into the arms of the
U. S. S. R. and (c) might well lead eventually to American Soviet
involvement and conflict.

6. The Communists would inevitably win such a war because the
foreign Powers, including the United States, which would support the
Government, could not feasibly supply enough aid to compensate for
the organic weaknesses of the Government.

7. In this unhappy dilemma, the United States should attempt to
prevent the disaster of a civil war through adjustment of the new align-

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 65

ment of power in China by peaceful processes. The desirable means to
this end is to encourage the reform and revitalization of the Kuo-
mintang so that it may survive as a significant force in a coalition
government. If this fails, we must limit our involvement with the Kuo-
mintang and must commence some cooperation with the Communists,
the force destined to control China, in an effort to influence them
further into an independent position friendly to the United States.
We are working against time because, if the U. S. S. R. enters the war
against Japan and invades China before either of these alternatives
succeeds, the Communists will be captured by the U. S. S. R. and be-
come Soviet satellites.

8. A policy of this description would also — and this is a decisive con-
sideration in the war against Japan — measurably aid our war effort. 4

THE MILITARY FACTOR

As serious as were the other factors which contributed to the general
deterioration during 1944 the most crucial point certainly, and the
one which loomed largest in official American thinking, was the disin-
tegration of the military situation which threatened the collapse of
the entire Chinese war effort. It was this military factor which most
immediately concerned American officials. Signs of military disinte-
gration appeared in the spring, assumed major proportions during
the summer, and eventuated in disaster during the fall. On April 17
the Japanese launched an attack southward across the Yellow River
which marked the beginning of their campaign to open the Peiping-
Hankow Railroad. On May 18 Loyang in the Yellow River area was
captured and the remnants of Tang En-po’s troops were set upon by
the local populace. With the capture of Kaifeng the entire Honan
front collapsed.

On May 27 the Japanese opened the drive southward into Hunan
Province across the Yangtze and along the Hankow-Canton Railroad.
On June 6, Huan-Chiang was occupied and the important center of
Changsha was flanked to the west. On June 18 Changsha was cap-
tured and ten days later Hengyang was surrounded, though it did not
fall until August 8. This placed the Japanese forces in a position
to mount an offensive against the strategic air base Kweilin. In mid-
August the J apanese mounted a new offensive in the coastal province
of Chekiang. This drive resulted in the capture of Lishui on August
28. In mid-September Japanese forces crossed from Hunan into
Kwangsi Province.

During the ensuing weeks J apanese forces from the north and south-
east converged on Kweilin, which fell on November 12. With this

4 See annex 47.

TJ. S. RELATIONS WITH CHINA

66

development the entire East China front had collapsed and there was
little reason to believe that the Japanese if they so elected would not
have the capability of attacking Chungking and the vitally important
American base at Kunming. The situation was further complicated
by reverses on the Salween front in Burma. Increasingly it had be-
come apparent that the Chinese war effort had largely ceased to be an
effective factor in China and that to a disturbing extent the Chinese
will to fight had vanished. The main Nationalist effort was being con-
centrated on containment of Communists in the north and in internal
political squabbles in Chungking. It was only in Burma, where the
Chinese troops were under the direct command of General Stilwell,
that Chinese ground forces were making a distinct military contri-
bution.

president roosevelt’s messages to generalissimo

CHIANG KAI-SHEK, JULY-AUGUST 1944

It was particularly this rapidly disintegrating military situation
in East China which gave the most serious concern to President Roose-
velt. As he saw it the first step in the solution would be the appoint-
ment of an American general to the command of all Chinese armies.
On July 7, 1944, the President sent the following message to the
Generalissimo:

“The critical situation which now exists in my opinion calls for
the delegation to one individual of the powers to coordinate all the
Allied military resources in China, including the Communist forces.
... I am promoting Stilwell to the rank of full General and I
recommend for your most urgent consideration that you recall him
from Burma and place him directly under you in the command of all
Chinese and American forces, and that you charge him with the full
responsibility and authority for the coordination and direction of the
operations required to stem the tide of the enemy’s forces. I feel that
the case of China is so desperate that if radical and promptly applied
remedies are not immediately effected, our common cause will suffer
a disastrous setback.”

The Generalissimo agreed to this proposal in principle but sug-
gested that as a preliminary step a high ranking American official
well acquainted with political as well as military matters and having
the complete confidence of the President be sent to Chungking to
discuss the problem. On J uly 15 the President replied as follows :

“I am very glad to learn that in principle you are in agreement
with the proposal to place General Stilwell in absolute command
under you of the Chinese troops without any hindrance. . . I am
searching for a personal representative with far sightedness and po-

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 67

litical ability to collaborate with you. . . In the meantime I again

urge you to take all steps to pave the way for General Stilwell’s as-
sumption of command at the earliest possible moment.”

The President followed up this message with another one of
August 10 :

“I have this proposal to make: That General Patrick J.
Hurley ... be designated by me as my personal representative
with you. . . He should be of great service in adjusting relations

between you and General Stilwell. . . .”

The President also proposed that Mr. Donald Nelson accompany
General Hurley to deal with lend-lease and other economic matters.
The Generalissimo accepted the proposal.

On August 23 the President again urged on the Generalissimo the
appointment of General Stilwell to the command of all Chinese Armies
in the following message :

“I am glad that you find General Hurley and Mr. Nelson acceptable
for the important mission they will perform for us. Now that my
personal representatives to you have been decided upon, I think we
should proceed immediately to take the positive steps demanded by
the military situation. I urge that you take the necessary measures
to place General Stilwell in command of the Chinese forces, under
your direction, at the earliest possible date. ... I feel certain, how-
ever, that between General Hurley and General Stilwell there will be
an adequate comprehension of the political problems you face. I am
urging action in the matter of Stilwell’s appointment so strongly
because I feel that, with further delay, it may be too late to avert a
military catastrophe tragic both to China and to our allied plans for
the early overthrow of J apan. ... I do not think the forces to come
under General Stilwell’s command should be limited except by their
availability to defend China and fight the Japanese. When the enemy
is pressing us toward possible disaster, it appears unsound to reject
the aid of anyone who will kill J apanese. ... I feel sure that Gen-
eral Hurley will be highly useful in promoting relations which will
facilitate General Stilwell’s exercise of command and his understand-
ing of the related political problems. . . .”

Despite his earlier agreement in principle, the Generalissimo had
still failed to place General Stilwell in command and the relations be-
tween the two men became increasingly bad. By early September, the
military picture had become so ominous that the President felt com-
pelled to send still another message to the Generalissimo :

“After reading the last reports on the situation in China my Chiefs
of Staff and I are convinced that you are faced in the near future with
the disaster I have feared. ... I have urged time and again in

U. S. RELATIONS WITH CHINA

68

recent months that you take drastic action to resist the disaster which
has been moving closer to China and to you. Now, when you have
not yet placed General Stilwell in command of all forces in China, we
are faced with a loss of a critical area in East China with possible
catastrophic consequences.”

REPORTS BY GENERAL STILWELL

On September 22, General Stilwell reported to the Chief of Staff in
Washington his estimate of the Generalissimo’s actions :

“Chiang Kai-shek is following his usual policy. At first he readily
agreed to the command arrangement and also by inference agreed to
use the communist army under my command, then he began the delay-
ing action, which still continues. He protests that there are many
difficulties which have to be smoothed out and this takes time. Actu-
ally, he believes that our advance in the Pacific will be swift enough
and effective enough to spare his further effort, and he would like to
avoid the bitter pill of recognizing the communists and putting a
foreigner in command of the army. . . .”

On September 26, General Stilwell again reported to the Chief of

Staff as follows :

“Chiang Kai-shek has no intention of making further efforts to
prosecute the war. Anyone who crowds him toward such action will
be blocked or eliminated . . . Chiang Kai-shek believes he can
go on milking the United States for money and munitions by using
the old gag about quitting if he is not supported. He believes the war
in the Pacific is nearly over, and that by delaying tactics, he can throw
the entire burden on us. He has no intention of instituting any real
democratic regime or of forming a united front with the communists.
He himself is the main obstacle to the unification of China and her
cooperation in a real effort against Japan ... I am now convinced
that, for the reasons stated, the United States will not get any
real cooperation from China while Chiang Kai-shek is in power. I
believe he will only continue his policy and delay, while grabbing for
loans and postwar aid, for the purpose of maintaining his present
position, based on one-party government, a reactionary policy, or the
suppression of democratic ideas with the active aid of his gestapo.”

Shortly before his departure from China, General Stilwell gave
yet another estimate of the crisis involving himself to the Chief of

Staff : „ .

“It is not a choice between throwing me out or losing Chiang Kai-

shek and possibly China. It is a case of losing China’s potential effort
if Chiang Kai-shek is allowed to make removals now. I believe that
the solution to the problem lies in insisting on the acceptance of our

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 69

proposals yet at the same time giving the Generalissimo a boost in
prestige which will permit him to give his agreement without loss of
face or offense to the Chinese Nationalist spirit.”

By this time it had become apparent to General Hurley that the
relations between the Generalissimo and General Stilwell had reached
a point where no kind of a third party intervention could possibly
remedy the damage already done except by the removal of General
Stilwell, and furthermore, that no progress could be made in other
outstanding questions until a new American Supreme Commander
had been appointed. President Roosevelt accepted this point of view
and Major General Albert C. Wedemeyer was designated to replace
General Stilwell. There was seemingly no real effort made subse-
quently to have General Wedemeyer named to command all Chinese
armies. It should be remembered in this connection that by the end of
the year it was apparent that the Japanese did not intend to push be-
yond Kweilin for the capture of Chungking, and furthermore that the
serious military situation which had developed in Burma early in the
summer had been considerably alleviated.

In his final report to the War Department, General Stilwell
made the following comments in appraisal of the controversy
in which he had been a principal figure :

“However, as the level of command rose, national policies and politics
entered the picture with resulting deterioration in sincerity and in
cooperation. With the one exception of the Chinese Army in India
where General Stilwell had been given direct command of the forces,
the Americans enjoyed no command functions in the Chinese Army.
Elsewhere the Theater Commander lacked the right of ‘order’. Con-
sequently, having no overall control, he could neither form the
strategy nor direct the tactics. Holding in general to a purely advisory
role, the Americans were often regarded with a jaundiced look of
suspicion. In some instances our honest efforts, and our impartial
action demonstrated an altruistic motive which won the respect and
trust of certain field commanders. This favorable reaction to our
conduct did not always hold true in the Chungking Government. In
high places we were generally regarded as interlopers' of cunning de-
meanor distributing largesse, most of which failed to materialize.

“ ‘Aid to China 5 , once undertaken, should have been vigorously
prosecuted. Fortified with a full knowledge of China’s governmental
venality, her economic chaos, her military weakness, a written agree-
ment to a plan committing her to a vigorous prosecution of the war
under American supervision and material assistance should have been
signed before we tendered any aid.

“It became increasingly obvious that a more frank and vigorous
foreign policy would have helped to gain China’s whole-hearted cooper-

70

U. S. RELATIONS WITH CHINA

ation, and her acknowledgment that our cooperation depended upon
determined action on her part. The genial, parental admonishments
of our government had failed to persuade the head of China’s Central
Government to recognize his political opponents — not even as a con-
cession to the United States who regarded such recognition as* impor-
tant to the war effort. Certain factors entered into the picture, illumi-
nating the fallacy of political placation, vain promise, and shabby
support of a vacillating policy which drained public funds into a futile
transfusion.

“Japanese aggression imposed a temporary unity on the various
elements in struggling to determine whether China would progress
along democratic or authoritarian lines. Of these elements Chiang
Kai-shek was the strongest, and public opinion compelled him to
assume the symbol of national unified will.

“Faced with the Japanese offensive designed to disintegrate China
and bring about its collapse, Chiang chose to abandon national unity
and to steer a course seeking to dominate rather than to unify and lead.
He sought to dominate because he had no appreciation of what genuine
democracy means.

“The Kuomintang party, of which he is the leader, was once the
expression of genuine nationalistic feeling, but is now an uncertain
equilibrium of decadent, competing factions, with neither dynamic
principles nor a popular base. Chiang controls by manipulating these
functions with an adroit political sense. His seat is insecure. His
reluctance to expand military strength, his preoccupation with the
security of domestic supremacy, his suspicion of everyone around him,
and his increasing emotional instability betrayed a realization of this.
He became a hostage of the forces he manipulated.

“Nowhere does Clausewitz’s dictum that war is only the continuation
of politics by other methods apply with more force that it did in CBI.
In handling such an uncertain situation as existed in that theater of
war, the Americans would have done well to avoid committing them-
selves unalterably to Chiang, and adopted a more realistic attitude
toward China itself. We could gain little by supporting the attitude
of the Chiang regime. We could have gained much by exerting pres-
sure on Chiang to cooperate and achieve national unity, and if he
proved unable to do this, then in supporting those elements in China
which gave promise of such development.” 4a

4a The present treatment of the controversy surrounding General Stilwell does
not purport to be a full and complete account of that crisis. Only that material
has been used which would serve as background for the Mission of General Hurley.
It is the understanding of the Department of State that the National Military
Establishment is preparing a full history of World War II and that this period
will be more fully treated therein.

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 71

It was primarily to prevent that which did finally happen that
General Hurley was dispatched to China by President Roosevelt.
Once that crisis had been resolved with the appointment of General
Wedemeyer, General Hurley undertook to lend his good offices in other
problems.

GENERAL HURLEY’S INSTRUCTIONS

According to General Hurley’s report to the Department of State
his instructions from the White House dated August 18 were (1) to
serve as personal representative of the President to Generalissimo
Chiang Kai-shek; (2) to promote harmonious relations between
Chiang and General J oseph Stilwell and to facilitate the latter’s exer-
cise of command over the Chinese armies placed under his direction ;
(3) to perform certain additional duties respecting military supplies;
and (4) to maintain intimate contact with Ambassador Gauss. A few
months later, after his appointment as Ambassador, General Hurley
outlined his understanding of his mission and of United States
policy in China in the following terms: “(1) To prevent the col-
lapse of the National Government, (2) to sustain Chiang Kai-shek
as President of the Republic and Generalissimo of the Armies, (3) to
harmonize relations between the Generalissimo and the American Com-
mander, (4) to promote production of war supplies in China and pre-
vent economic collapse, and (5) to unify all the military forces in
China for the purpose of defeating Japan.”

GENERAL HURLEY’S TALK WITH MR. MOLOTOV

In company with Mr. Donald Nelson, chairman of the War Pro-
duction Board, and a Special Representative of President Roosevelt,
General Hurley had flown to Chungking by way of Moscow, where they
had discussed the Chinese situation with Foreign Minister Molotov.
According to Mr. Nelson’s report of this conversation, he explained
that his main business in China concerned economic matters and that
General Hurley’s concerned military matters ; that Chinese coopera-
tion in the war was of “vital importance”; and that to achieve this the
United States Government must support Generalissimo Chiang and
effect complete unity in China. In response to Mr. Nelson’s request for
Soviet opinion on this subject, Mr. Molotov replied that it was difficult
to judge the Chinese situation from Washington or Moscow but that he
would be willing to express some off-the-record thoughts. Mr. Molo-
tov’s remarks were summarized in the report as follows :

“Molotov then talked at length on the Generalissimo’s imprison-
ment at Sian in 1936 and said that relations between China and the

72

U. S. RELATIONS WITH CHINA

Soviet Union were tense at that time. However, he said that the
Soviet Government had turned its back on the Chinese revolutionary
groups led by Chang Hsueh-liang and Wang Ching-wei which in-
cluded many Communists and which looked to the Soviet Union for
sympathy and aid and had issued a statement to the effect that J apanese
provocation had been the cause of the uprising in Sian and other events
in China. Due to the political and moral support of the Soviet govern-
ment, Chiang had been allowed to return to the seat of his government
and the revolutionary leader (Chang Hsueh-liang) had been arrested.
The Soviets had hoped as a result of their action that Soviet-Chinese
relations would change for the better. However, the Chinese had
shown little interest in strengthening relations which had on the con-
trary deteriorated in recent years.

“ Although he said that the Soviet government had unjustifiably been
held responsible for various happenings in China during recent years,
Molotov stressed that it would bear no responsibility for internal
affairs or developments in China. Molotov then spoke of the very
impoverished conditions of the people in parts of China, some of
whom called themselves Communists but were related to Communism
in no way at all. It was merely a way of expressing dissatisfaction
with their economic condition and they would forget this political
inclination when their economic condition improved. The Soviet gov-
ernment should not be associated with these ‘communist elements’ nor
could it in any way be blamed for this situation. The solution of the
entire situation was to make the Chinese government work in the com-
mon interest and cope with the tasks before it and to make life more
normal in China. Molotov said in conclusion that the Soviets would be
glad if the United States aided the Chinese in unifying their country,
in improving their military and economic condition and in choosing for
this task their best people. . . . Molotov’s satisfaction at being con-
sulted was clearly indicated. He gave little new information but he
confirmed statements made previously that his government would be
glad to see the United States taking the lead economically, politically,
and militarily in Chinese affairs. Molotov made it clear also that
until Chiang Kai-shek tried by changes in his policies to improve Sino-
Soviet relations, the Soviet government did not intend to take any
interest in Chinese governmental affairs.”

The importance of this conversation is apparent from the frequent
references in General Hurley’s subsequent reports to Molotov’s expres-
sion of Soviet policy toward China.

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 73

II. THE EFFORT AT MEDIATION

INITIAL STEPS

Upon arriving at Chungking in September, General Hurley came to
the conclusion that the success of his mission “to unify all the military
forces in China for the purpose of defeating Japan 55 was dependent on
the negotiations already under way for the unification of Chinese
military forces. Accordingly, shortly after his arrival he undertook
active measures of mediation between the Chinese National Govern-
ment and the Chinese Communist Party.

In December 1944 General Hurley commented as follows regarding
his early efforts at reconciliation :

“At the time I came here Chiang Kai-shek believed that the Com-
munist Party in China was an instrument of the Soviet Government
in Russia. He is now convinced that the Russian Government does
not recognize the Chinese Communist Party as Communist at all and
that (1) Russia is not supporting the Communist Party in China,
(2) Russia does not want dissensions or civil war in China, and (3)
Russia desires more harmonious relations with China.

“These facts have gone far toward convincing Chiang Kai-shek
that the Communist Party in China is not an agent of the Soviet
Government. He now feels that he can reach a settlement with the
Communist Party as a Chinese political party without foreign en-
tanglements. When I first arrived, it was thought that civil war after
the close of the present war or perhaps before that time was inevitable.
Chiang Kai-shek is now convinced that by agreement with the Com-
munist Party of China he can (1) unite the military forces of China
against Japan, and (2) avoid civil strife in China. 55

With respect to specific steps taken by him, General Hurley reported
in December 1944 that with the consent, advice and direction of
the Generalissimo and members of his Cabinet and on the invitation
of leaders of the Communist Party, he had begun discussions with the
Communist Party and Communist military leaders for the purpose
of effecting an agreement to regroup, coordinate and unite the military
forces of China for the defeat of Japan. He continued : “The defeat
of Japan is, of course, the primary objective, but we should all under-
stand that if an agreement is not reached between the two great
military establishments of China, civil war will in all probability
ensue. 55

74

U. S. RELATIONS WITH CHINA

THE FIVE-POINT DRAFT AGREEMENT, NOVEMBER 10, 1944

Following discussions with Chinese Government and Chinese Com-
munist representatives in Chungking, General Hurley on November 7,
1944, flew to Yenan for a two-day conference with Mao Tse-tung, the
Chairman of the Central Executive Committee of the Chinese Com-
munist Party. The Communist leaders were impressed by the fact
that General Hurley had taken the initiative in making this
flight and cordial relations were established at once. As a result of
these discussions there was evolved at Yenan a five-point draft, entitled
“Agreement Between the National Government of China, the Kuomin-
tang of China and the Communist Party of China,” which was signed
by Mao Tse-tung as Chairman of the Central Executive Committee
of the Chinese Communist Party on November 10, 1944, and by Gen-
eral Hurley as a witness. This important agreement read as follows :

“(1) The Government of China, the Kuomintang of China and the
Communist Party of China will work together for the unification of
all military forces in China for the immediate defeat of Japan and
the reconstruction of China.

u (2) The present National Government is to be reorganized into a
coalition National Government embracing representatives of all anti-
Japanese parties and non-partisan political bodies. A new democratic
policy providing for reform in military, political, economic and cul-
tural affairs shall be promulgated and made effective. At the same
time the National Military Council is to be reorganized into the United
National Military Council consisting of representatives of all anti-
Japanese armies.

“(3) The coalition National Government will support the prin-
ciples of Sun Yat-sen for the establishment in China of a government
of the people, for the people and by the people. The coalition Na-
tional Government will pursue policies designed to promote progress
and democracy and to establish justice, freedom of conscience, freedom
of press, freedom of speech, freedom of assembly and association, the
right to petition the government for the redress of grievances, the right
of writ of habeas corpus and the right of residence. The coalition
National Government will also pursue policies intended to make
effective the two rights defined as freedom from fear and freedom
from want.

“(4) All anti- Japanese forces will observe and carry out the orders
of the coalition National Government and its United National Military
Council and will be recognized by the Government and the Military
Council. The supplies acquired from foreign powers will be
equitably distributed.

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 75

“(5) The coalition National Government of China recognizes the
legality of the Kuomintang of China, the Chinese Communist Party
and all anti- J apanese parties.”

THE THREE-POINT PLAN

General Hurley felt that this Five-Point Draft Agreement, which
he promptly submitted to the National Government, offered a prac-
tical plan for settlement with the Communists. National Government
leaders, however, said that the Communist plan was not acceptable.
The National Government submitted as counter-proposal a Three-
Point Agreement reading as follows :

(1) The National Government, desirous of securing effective uni-
fication and concentration of all military forces in China for the
purpose of accomplishing the speedy defeat of Japan, and looking
forward to the post-war reconstruction of China, agrees to incorporate,
after reorganization, the Chinese Communist forces in the National
Army who will then receive equal treatment as the other units in
respect of pay, allowance, munitions and other supplies, and to give
recognition to the Chinese Communist Party as a legal party.

“(2) The Communist Party undertakes to give their full support
to the National Government in the prosecution of the war of resistance,
and m the post-war reconstruction, and give over control of all their
troops to the National Government through the National Military
Council. The National Government will designate some high rank-
ing officers from among the Communist forces to membership in the
National Military Council.

“(3) The aim of the National Government to which the Communist
Party subscribes is to carry out the Three People’s Principles of Dr.
Sun Yat-sen for the establishment in China of a government of the
people, for the people and by the people and it will pursue policies
designed to promote the progress and development of democratic
processes in government.

“In accordance with the provisions of the Program of Armed Re-
sistance and National Reconstruction, freedom of speech, freedom of
the press, freedom of assembly and association and other civil liberties
are hereby guaranteed, subject only to the specific needs of security
m the effective prosecution of the war against Japan.”

REPLY OF THE CHINESE COMMUNISTS

This proposal was handed to General Chou En-lai, the Communist
representative in Chungking, on November 22 and was taken by him
to Yenan early in December. Following his arrival in Yenan, Gen-

76

U. S. RELATIONS WITH CHINA

eral Chou wrote General Hurley a letter, which the latter reported
as follows :

“The refusal of the Generalissimo and the National Government of
our minimum five point proposal, clearly showing disagreement with
our suggestions for a coalition government and united military coun-
cil and the submission of the three point counter-proposal, preclude
the possibility of my returning to Chungking for further negotiations.
We find it impossible to see any fundamental common basis in these
new proposals. We feel that publication of our five-point proposal is
now called for in order to inform the public and to bring out the chang-
ing attitude of the Government.

“Despite the fact that President Chiang has so limited the question
of military cooperation between us that no easy solution can be
achieved, we completely desire to continue to discuss with you and
General Wedemeyer 5 the concrete problems of our future military
cooperation and to continue the closest contact with the United States
Army Observers Section in Yenan. Chairman Mao Tse-tung has es-
pecially asked me to express his deep thanks and appreciation for
your sympathy and energetic efforts on behalf of unity in China.”

General Hurley reported that he was conferring daily with the
Generalissimo and members of his cabinet “endeavoring to liberalize
the counter-proposal. We are having some success. The General-
issimo states that he is anxious that the military forces of the Com-
munist Party in China and those of the National Government be
united to drive the invaders from China. The Communist leaders
declare this is also their objective. I have persuaded Chiang that in
order to unite the military forces in China and prevent civil conflict
it will be necessary for him and the Kuomintang and the National
Government to make liberal political concessions to the Communist
Party and to give them adequate representation in the National Gov-
ernment.”

General Hurley, who reported that all his communications with
Yenan without exception were sent with the full knowledge and
consent of the high officials of the National Government, wrote Chou
En-lai that it was his understanding that the five-point offer of settle-
ment proposed by the Chinese Communists was to form the basis
of discussion and was not a “take it or leave it” proposition ; that the
Communist Party was willing to consider suggestions for amendments
by the National Government and that the three-point offer in response
to the Communist proposal was not the final word of the National

* General Wedemeyer had replaced General Stilwell in November as com-
mander of United States forces in the China Theater.

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 77

Government. He regarded both instruments as steps in the nego-
tiations and it was his understanding that publication of the five-point
Communist proposal would be withheld while negotiations were pend-
ing. He did not believe that negotiations had been terminated unless
General Chou so wished them, and he knew that the National Gov-
ernment was disposed to make every effort to unify China. He felt
it would be a great tragedy if the door were closed at this critical hour
to further discussions.

General Chou replied to General Hurley on December 16, 1944,
stating that the unexpected and flat rejection by the Kuomintang of
the Communist five-point proposal caused a deadlock in the negotia-
tions and rendered his return to Chungking useless. He indicated
that this could not be construed as Communist discontent with the
United States and that he agreed with the advice of General Hurley
against the publication of the five points, but insisted that they should
be made public when the appropriate time came. The one funda-
mental difficulty with respect to these negotiations, he felt, was the
unwillingness of the Kuomintang to forsake one-party rule and accept
the proposal for a “democratic coalition government.”

General Hurley replied to General Chou En-lai in a telegram on
December 21, 1944, stating his belief that chances for success along
the general lines of the Communist proposals would be “brighter
than ever before if he would come again to Chungking.” On Decem-
ber 24, Mao Tse-tung telegraphed General Hurley stating that General
Chou was occupied with “important conference preparations” which
made his departure from Yenan difficult. Mao stated that the National
Government had not shown sufficient sincerity to warrant continuing
negotiations on the basis of the five-point proposal and he suggested
a conference in Yenan. On December 28, General Chou wrote General
Hurley that the Communists would not be willing to continue abstract
discussions on the question of accepting their proposal for a “demo-
cratic coalition government.” He proposed instead the following
four additional points which he requested the Ambassador to com-
municate to the Chinese Government authorities “to see whether they
are determined to realize democracy and unity”: (1) The release of
all political prisoners; (2) the withdrawal of Kuomintang forces sur-
rounding the border region and those attacking the new Fourth Army
and the South China Anti-Communist column; (3) the abolition of
all oppressive regulations restricting the people’s freedom ; and (4)
cessation of all secret service activity.

Ambassador Hurley replied in a letter dated January 7, 1945, ad-
dressed to Mao Tse-tung and Chou En-lai, stating that the additional
four points outlined in the latter’s letter of December 28 constituted

78

U. S. RELATIONS WITH CHINA

a departure from “our original agreed procedure which was to arrive
at an agreement on general principles before discussing specific de-
tails.” The Ambassador also stated that he was convinced that the
National Government was sincerely desirous of making such conces-
sions as would make a settlement possible, but that such matters could
not be discussed by telegram or letter. He suggested, after obtaining
the approval of the National Govermnent, that he make a brief visit
to Yenan, accompanied by Dr. T. V. Soong, Dr. Wang Shih-chieh, and
General Chang Chih-chung, to discuss matters in person and that Mao
Tse-tung and Chou En-lai might return with the foregoing group to
Chungking if agreement in principle were reached as a result of the
discussions in Yenan.

THE CONFERENCE AT CHUNGKING

In a reply to this proposal, on January 11, Mao Tse-tung stated that
the proposal for a conference between both parties at Yenan was
greatly appreciated but that he felt that nothing could be achieved
thereby. He proposed that a preparatory conference be called in
Chungking for the purpose of convening a National Affairs Con-
ference; that the preparatory conference include Kuomintang, Com-
munist and Democratic League delegates; that the proceedings of
the conference be made public; and that “the delegates have equal
standing and freedom to travel.” He added that if the National Gov-
ernment found these proposals acceptable General Chou would proceed
to Chungking for discussions. On January 20, the Ambassador wrote
Mao Tse-tung with the knowledge and approval of the Generalissimo
outlining certain changes that were contemplated in the National
Government. General Hurley added “it may well be that this measure
together with the other measures that have been offered by the National
Government may not be sufficient to satisfy the Chinese Communists,
but I think it would be a great pity if such far-reaching government
proposals were rejected out of hand without due consideration. As a
friend of China I suggest you send General Chou En-lai or any other
representative you may select to Chungking for a brief visit to talk
matters over with the Government. It need not take long; if he is
busy two or three days would be sufficient.” On January 23, the Am-
bassador was informed by Mao Tse-tung in reply that General Chou
was being sent to Chungking to negotiate with the Government.

THE NATIONAL GOVERNMENT’S PROPOSAL

Following the arrival of General Chou in Chungking on January
24 a series of conferences were held in which Dr. T. V. Soong, Acting
President of the Executive Yuan and Minister for Foreign Affairs,

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 79

Dr. Wang Shih-chieh, Minister of Information, and General Chang
Chih-chung, Director of Political Training of the National Ministries
Council, represented the National Government. General Chou rep-
resented the Chinese Communist Party and General Hurley attended
on the invitation of both parties. Dr. Wang Shih-chieh stated that
the National Government was prepared to take the following measures,
in addition to its previous three-point proposal :

“1. The Government will set up, in the Executive Yuan, an organ
whose nature resembles a war cabinet, with a membership of from
seven to nine men, to act as the policy making body of the Executive
Yuan. The Chinese Communist Party and other parties will be given
representation on this organ.

“2. The Generalissimo of the National Military Council will appoint
two Chinese Army officers (of whom one will be an officer of the
Chinese Communist troops) and one American Army officer to make
recommendations regarding the reorganization, equipment and sup-
plies of Chinese Communist troops, for approval by the Generalissimo
of the National Military Council.

“3. The Generalissimo of the National Military Council will appoint
one American Army officer as the immediate commander of Chinese
Communist troops for the duration of the war against Japan. The
said immediate commander of Chinese Communist troops shall be
responsible to the Generalissimo of the National Military Council.
He shall insure the observance and enforcement of all government
orders, military or nonmilitary, in the area under his control.”

THE COMMUNIST PARTY’S REACTION

Ambassador Hurley stated that he had no authority from his Gov-
ernment to agree that an American Army officer would participate as
indicated in the National Government’s proposal. General Chou
objected that Dr. Wang was not yet fully aware of the fundamental
aims of the Communists. Despite the Generalissimo’s New Year’s
speech, in which he had spoken of the necessity for adopting a consti-
tution at an early date and returning the control of the Government
to the people, it appeared to General Chou that Dr. Wang’s proposal
represented merely concessions made by the Kuomintang while that
party still retained control of the Government. General Chou re-
peated the position which he and Mao Tse-tung had expressed to
General Hurley when they had negotiated the original Five-Point
Agreement, namely, that the Communist Party would not submit the
command of its troops to the Kuomintang Party although it was pre-
pared to turn over command of its troops to the National Government
when the one-party rule of the Kuomintang had been abolished and

80

TJ. S. RELATIONS WITH CHINA

the Government had been reconstituted as a coalition administration
representing all parties. He would favor at such time establishing a
military commission to reorganize the Chinese armed forces, but he
would not agree that such a commission should be permitted to re-
organize only Communist troops. The entire Chinese military estab-
lishment should be reorganized and he would be glad to see an
American serve on such a commission.

CONFERENCE WITH THE GENERALISSIMO

This Communist Party position was made known to Generalissimo
Chiang at a conference attended by Ambassador Hurley, Dr. T. V.
Soong, and Dr. Wang Shih-chieh. The Ambassador reported that
Chiang pointed out that he was calling a meeting for May 4, in
keeping with the will of Dr. Sun Yat-sen, for the purpose of taking
steps to draft a constitution, to pass the control of the National Gov-
ernment to the people, and to abolish the one-party rule of the
Kuomintang. The Generalissimo made the definite statement that in
his opinion all the political parties in China including his own con-
stituted less than 2 percent of the Chinese people. He believed that
it would not be for the best interest of China to turn the control of
the Government over to any political group or to a coalition of polit-
ical groups. He felt it to be his duty to have a democratic constitu-
tion for China adopted by a convention in which all the people of
China, and not alone the organized political minorities, would partici-
pate. He expressed his belief that the Chinese Communist Party was
not in fact a democratic party and that it professed to be democratic
only for the purpose of trying to achieve control of the administration
of the National Government. The Ambassador suggested to the
Generalissimo that he was losing valuable time and again said that
he could afford to make political concessions and shorten the period
of transition in order to obtain control of the Communist forces.
Ambassador Hurley stated that the Generalissimo’s most important
objective at the moment should be unification of the Communist mili-
tary forces with those of the National Government. This would be
the first step toward China’s major objectives, namely : (1) unification
of all military forces to defeat Japan; (2) unification of China to
prevent outside forces from keeping China divided against itself;
(3) prevention of civil war in China and (4) a united, free, demo-
cratic China under a democratic constitution adopted by a convention
of the Chinese people.

After extended discussions Dr. Wang Shih-chieh and General Chou
En-lai were appointed to form a committee to draw up a proposal

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 81

which “would make action possible.” On February 3 Dr. Wang
Shih-chieh presented the following draft to the Ambassador :

“In order to intensify our war effort against the enemy and
strengthen our national unity, it is agreed that the National Govern-
ment should invite the representatives of the Kuomintang and other
parties, and some non-partisan leaders, to a consultative meeting.
This meeting is to be named the Political Consultation Conference,
and its membership is not to exceed persons.

“The function of this conference is to consider: (a) steps to be
taken in winding up the period of political tutelage and establishing
constitutional government, (b) the common political program to be
followed in the future and the unification of armed forces, and (c) the
form in which members of parties outside the Kuomintang will take
part in the National Government.

“If the said Political Consultation Conference succeeds in reaching
a unanimous conclusion, it will be submitted to the National Govern-
ment for consideration and execution. During the Political Consulta-
tion Conference, all parties should refrain from recriminations of anv
kind.”

General Chou En-lai informed the Ambassador that he was sending
a copy of the draft by telegram to Yenan and he added that for the
first time he felt that a basis for cooperation was being reached.
General Hurley reported that he discussed the draft with Generalis-
simo Chiang Kai-shek on February 4. In reporting this discussion
the Ambassador stated that the Generalissimo said he had consented
to the proposal but he felt that the Communists had obtained what
they had been endeavoring to obtain all along. Ambassador Hurley
told him “very frankly” that the only instrument heretofore with
which he could have worked with the Communists was the five-point
agreement ; that if he had revised that agreement at the time it was
offered, the Communists would probably have accepted reasonable
revision ; and that it was still the only document in which there was a
signed agreement by the Communists to submit control of their armed
forces to the National Government.

SUMMARY OF KUOMINTANG VIEWS

In the middle of February 1945 the Ambassador summarized the
views of the representatives of the Chinese Government during these
discussions. According to his report, the Government representa-
tives stated that the real purpose of the Chinese Communist Party
was not the abolition of the one-party rule by the Kuomintang but
rather, as indicated by all the maneuvers made by the Chinese Com-

82

U. S. RELATIONS WITH CHINA

munists, to overthrow control by the Kuomintang Party and obtain a
one-party rule of China by the Chinese Communist Party. The Kuo-
mintang desired to have a democratic constitution adopted and to
return the government to the people. It would not surrender its
authority in these troublous times to a coterie of parties in a so-called
coalition government. It would appoint a bi-partisan war cabinet
with policy-making powers but would retain control of the Govern-
ment until control was returned to the people under a democratic
constitution. The Generalissimo stated that he wanted the Commu-
nists to accept the latest offer of the Government, which was made in
good faith and with every possible guarantee that their armed forces
would not be destroyed or discriminated against. He said that the
Chinese Communists aimed to effect a coup by which they would take
control of the National Government and convert it into a one-party
Communist Government similar to that of Russia. He felt that the
Chinese Communist Party’s hopes for success were based on the fact
that they believed that if Russia entered the war in Asia it would sup-
port the Chinese Communists against the National Government. Chi-
ang pointed out that notwithstanding all this, the Government had
decided to undertake this bold measure for returning rule to the people
in the midst of war ; that now the Government invited the Communists
and other Party representatives, with complete freedom of travel, to
meet on an equal status for the purpose of intensifying efforts against
the enemy and strengthening national unity and to provide a program
for completing the period of tutelage and establishing a democratic
constitutional government.

ADJOURNMENT OF THE CONFERENCE

In concluding his report on these negotiations, General Hurley
stated : “I am convinced that our Government was right in its decision
to support the National Government of China and the leadership of
Chiang Kai-shek. I have not agreed to any principles or supported
any method that in my opinion would weaken the National Govern-
ment or the leadership of Chiang Kai-shek. I have, however, on many
occasions, advised the Generalissimo and Soong that China must fur-
nish her own leadership, make her own decisions and be responsible
for her own domestic and international policies.”

General Chou En-lai left Chungking for Yenan on February 16.
Prior to his departure he informed the Ambassador that he believed
that his Party would agree to the Political Consultation Conference
provided for in the proposal of the Chinese Government. He ex-
pressed the opinion, however, that one-party rule should be immedi-
ately ended and that a coalition administration should be instituted

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 83

to guide China in forming a democratic government based upon a
democratic constitution adopted by a people’s convention. General
Hurley departed from Chungking on February 19, 1945, for consul-
tation in Washington.

THE GENERALISSIMO’S STATEMENT OF MARCH 1, 1945

Generalissimo Chiang, in a public address on March 1, 1945 before
the Commission for the Inauguration of Constitutional Government,
reaffirmed his conviction that the solution of the Communist question
must be through political means and outlined the steps which the
Government had taken looking toward such solution. He stated :

“I have long held the conviction that the solution of the Communist
question must be through political means. The Government has la-
bored to make the settlement a political one. As the public is not well
informed on our recent efforts to reach a settlement with the Commu-
nists, time has come for me to clarify the atmosphere.

“As you know, negotiations with the Communists have been a peren-
nial problem for many years. It has been our unvarying experience
that no sooner is a demand met than fresh ones are raised. The latest
demand of the Communists is that the Government should forthwith
liquidate the Kuomintang rule, and surrender all power to a coalition
of various parties. The position of the Government is that it is ready
to admit other parties, including the Communists as well as non-parti-
san leaders, to participate in the Government, without, however,
relinquishment by the Kuomintang of its power of ultimate decision
and final responsibility until the convocation of the People’s Congress.
We have even offered to include the Communists and other parties in
an organ to be established along the lines of what is known abroad as
a ‘war cabinet’. To go beyond this and to yield to the Communist
demand would not only place the Government in open contravention
of the Political Program of Dr. Sun Yat-sen, but also create insur-
mountable practical difficulties for the country.

“The Government has not hesitated to meet the issues raised by the
Communists squarely. During his recent visit the Communist repre-
sentative, Chou En-lai, was told that the Government would be pre-
pared to set up in the Executive Yuan a policy-making body to be
known as the Wartime Political Council, to which other parties, includ-
ing the Communists, would have representation. In addition, he was
told that the Government would be ready to appoint a Commission
of three officers to make plans for the incorporation of the Communist
forces in the National Army, composed of one Government officer, one
Communist and one American, provided that the United States Gov-
ernment would agree to allow an American officer to serve. If the

84

U. S. RELATIONS WITH CHINA

United States Government could not agree, some other means of guar-
anteeing the safety of the Communist forces, and non-discrimination
in their treatment, could doubtless be evolved.

“No one mindful of the future of our four hundred and fifty million
people and conscious of standing at the bar of history would wish to
plunge the country into a civil war. The Government has shown its
readiness and is always ready to confer with the Communists to bring
about a real and lasting settlement with them.

“I have explained the Government’s position on the Communist prob-
lem at length, because today that is the main problem to unity and
constitutional government.

“I now turn to the concrete measures which the Government pro-
poses to take to realize constitutional government which I wish to
announce briefly :

“1. The People’s Congress to inaugurate constitutional government
will be convened on November 12 this year (the 80th birthday of Dr.
Sun Yat-sen) subject to the approval by the Kuomintang National
Congress which is due to meet in May.

“2. Upon the inauguration of constitutional government, all politi-
cal parties will have legal status and enjoy equality. (The Govern-
ment has offered to give legal recognition to the Communist Party as
soon as the latter agrees to incorporate its army and local administra-
tion in the National Government. The offer still stands.)

“3. The next session of the People’s Political Council with a larger
membership as well as more extensive powers will soon be sitting.
The Government will consider with the council the measures in regard
to the convening of the People’s Congress and all related matters.” 6

THE COMMUNIST PARTY’S REPLY, MARCH 9, 1945

On March 12, 1945, the American Embassy at Chungking was re-
quested to transmit the following letter, 7 dated March 9 from General
Chou to General Hurley, who was then in Washington :

“Your kind message of 20 February has been received.

“Under instructions from the Central Committee of my party and
from Chairman Mao Tse-tung I have sent a letter on the 9th of March
to Dr. Wang Shih-chieh, representative of the National Government,
containing the following two points of which I especially would like
to inform you about :

9 For complete text, see China Handbook , 1987-1945, p. 73.

T This message and a preceding one of Feb. 18 from General Chou to General
Hurley concern the question of Chinese Communist participation on the Chinese
delegation to the San Francisco Conference. For texts of Feb. 18 message and
reply by General Hurley, see annexes 48 (a) and 48 (b).

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 85

“1. The Central Committee of my party was originally planning
to draft our proposals in answer to Dr. Wang Shih-chieh’s proposal
of calling a political consultation conference, in order to facilitate
the discussions, and so it was all the more unexpected that President
Chiang Kai-shek on March 1, should have made a public statement op-
posing the abolition of one-party rule, the convening of an inter-party
conference and also the establishment of a coalition government, an-
nouncing instead the one-party Kuomintang government is preparing
to call on November 12 of this year that one-party controlled, deceit-
ful, China splitting, so-called National Congress, based on conditions
to which the people have no freedom, in which political parties and
groups have no legal status, and in which large areas of the country
have been lost making it impossible for the majority of the people to
take part.

“This clearly demonstrates that the Kuomintang government is ob-
stinately insisting on having their own way alone, thus on the one
hand showing that they have not the least sincerity of wanting to
carry out democratic reforms, and on the other it leaves no basis on
which negotiations between the Communist Party and the other demo-
cratic parties and the Kuomintang government can be continued in
these circumstances. The Central Committee of my party considers
that there is no longer the need to draft proposals in answer to Wang
Shih-chieh.

“2. The Central Committee of my party and Chairman Mao Tse-
tung are decidedly of the opinion that if Chinese delegates are to
represent the common will of the whole Chinese people at the San
Francisco Conference in April, then they must consist of representa-
tives of the Chinese Kuomintang, the Chinese Communist Party and
the Chinese Democratic League; and definitely there should not
be only Kuomintang government delegates attending the meeting.
America and England both have announced that their delegations
will consist of representatives from all important political parties
while your Honorable President has made known that the American
delegation will consist of an equal number from both the Democratic
and Republican parties ; but since the Chinese situation is so lacking
in unity, then, if the Kuomintang should try to monopolize the en-
tire delegation, this would be not only unjust or unreasonable, but it
would show that their standpoint is for wanting to split China. My
party has already officially put forth the above demands to the Kuo-
mintang government and suggested that Chou En-lai, Tung Pi-wu
and Chin Pang-hsien, three members of our Central Committee, join
the Chinese delegation. If this is not accepted by the Kuomintang
government, then my party will determinedly oppose the Kuomin-

86

U. S. RELATIONS WITH CHINA

tang splitting measure and reserve the right of expression on all opin-
ions and the actions of the monopolized delegation of the Kuomintang
government at the conference of the United Nations at San Francisco.

“Please inform your Honorable President of the above two proposals
as soon as possible and also express my deep appreciation for his inter-
est on behalf of Chinese unity. I extend to you my deepest personal
regards.”

In view of this sharp reaction by the Chinese Communist Party, ac-
tive negotiations between the Communists and the National Govern-
ment leaders looking toward the unification of China were broken off
at this time and were not resumed until the following summer. In
commenting on these negotiations, Ambassador Hurley stated :

“I pause to observe that in this dreary controversial chapter, two
fundamental facts are emerging : (1) the Communists are not in fact
Communists, they are striving for democratic principles; and (2)
the one party, one man personal Government of the Kuomintang is
not in fact fascist, it is striving for democratic principles. Both the
Communists and the Kuomintang have a long way to go, but if we
know the way, if we are clear minded, tolerant and patient, we can be
helpful. But it is most difficult to be patient at a time when the unified
military forces of China are so desperately needed in our war effort.”

III. THE PROBLEM OF MILITARY ASSISTANCE

AMBASSADOR HURLEY’S RECOMMENDATION AGAINST
AMERICAN AID TO THE CHINESE COMMUNISTS

Meanwhile, another problem had arisen shortly before the Ambas-
sador’s departure for Washington. This was the problem of supply-
ing American arms and equipment to groups in China other than the
National Government. The Ambassador recommended that “all such
requests, no matter how reasonable they may seem to be, be universally
refused until or unless they receive the sanction of the National Gov-
ernment and of the American Government.” It was his “steadfast
position that all armed warlords, armed partisans and the armed forces
of the Chinese Communists must without exception submit to the con-
trol of the National Government before China can in fact have a
unified military force or unified government.” The Ambassador fol-
lowed this policy in connection with a request from General Chu Teh
in January 1945 that the United States Army lend the Communist
forces 20 million dollars in United States currency for use in procur-
ing the defection of officers and men of the Chinese puppet govern-
ment together with their arms and for use in encouraging sabotage

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 87

and demolition work by puppet troops behind the Japanese lines.
General Chu informed General Wedemeyer that his forces would as-
sume full responsibility for repayment of the loan following victory
over Japan and in support of his request submitted a document claim-
ing that during 1944 Communist forces won over 34,167 Chinese
puppet troops with 20,850 rifles, sidearms, mortars, field pieces, etc.
The document estimated that with American financial help puppet
defections during 1945 could be increased to 90,000 men. In com-
menting on this proposal the Ambassador stated :

“While financial assistance of the type requested by General Chu
might in the end prove to be more economical than importing a similar
quantity of arms and ammunition from the United States for use
against Japan, I am of the firm opinion that such help would be iden-
tical to supplying arms to the Communist armed Party and would,
therefore, be a dangerous precedent. The established policy of the
United States to prevent the collapse of the National Government and
to sustain Chiang Kai-shek as president of the Government and Gen-
eralissimo of the Armies would be defeated by acceptance of the Com-
munist Party’s plan or by granting the lend-lease and monetary as-
sistance requested by General Chu Teh.”

THE AMERICAN CHARGE’S RECOMMENDATIONS

Shortly after the arrival of General Hurley in Washington for con-
sultation the question of supplying arms and military equipment to
the Chinese Communist forces was raised by the American Charge
d’Affaires at Chungking, George Atcheson, in the communication to
the Department of State paraphrased below. The Charge had report-
ed on February 26 that since the conclusion of negotiations with the
Communists there had been a growing impression among observers
there that for various reasons the Generalissimo had greatly stiffened
his attitude toward the Communists and toward the continuing faint
hopes held by some liberals that a settlement might still eventually
be possible.

It appears that the situation in China is developing in some ways
which are neither conducive to the future unity and peace of China
nor to the effective prosecution of the war.

A necessary initial step in handling the problem was the recent
American endeavor to assist compromise between the factions in
China through diplomatic and persuasive means. Not only was
unity correctly regarded as the essence of China’s most effective
conduct of the war, but also of the speedy, peaceful emergence of a
China which would be united, democratic, and strong.

88

U. S. RELATIONS WITH CHINA

However, the rapid development of United States Army plans
for rebuilding the armies of Chiang Kai-shek, the increase of addi-
tional aid such as that of the War Production Board, the cessation
of J apanese offensives, the opening of the road into China, the ex-
pectation that the Central Government will participate at San Fran-
cisco in making important decisions, the conviction that we are deter-
mined upon definite support and strengthening of the Central Gov-
ernment alone and as the sole possible channel for assistance to other
groups, the foregoing circumstances have combined to increase
Chiang Kai-shek’s feeling of strength greatly. They have resulted
in lack of willingness to make any compromise and unrealistic
optimism on the part of Chiang Kai-shek.

Among other things, this attitude is reflected in hopes of an early
settlement with the Soviet Union without settlement of the Com-
munist problem, when nothing was ultimately offered except an
advisory inter-party committee without place or power in the
Government, and in recent appointments of a military-political
character, placing strong anti-Communists in strategic war areas,
and naming reactionaries to high administrative posts, such as Gen-
eral Ho Kuo Kuang, previously Commander-in-Chief of Gendar-
merie, as Chairman of Formosa; and Admiral Chan Chak, Tai Li
subordinate, as mayor of Canton.

On their part, the Communists have arrived at the conclusion
that we are definitely committed to the support of Chiang Kai-shek
alone, and that Chiang’s hand will not be forced by us so that we
may be able to assist or cooperate with the Communists. Conse-
quently, in what is regarded by them as self-protection, they are
adopting the course of action which was forecast in statements made
by Communist leaders last summer in the event they were still ex-
cluded from consideration, of increasing their forces actively and
expanding their areas to the south aggressively, reaching southeast
China, regardless of nominal control by the Kuomintang. We
previously reported to the Department extensive movements and
conflicts with forces of the Central Government already occurring.

It is the intention of the Communists, in seizing time by the fore-
lock, to take advantage of East China’s isolation by the capture of
the Canton-Hankow Kailway by Japan to render themselves as
nearly invincible as they can before the new armies of Chiang Kai-
shek, which are being formed in Yunnan at the present time, are pre-
pared; and to present to us the dilemma of refusing or accepting
their assistance if our forces land at any point on the coast of China.
There is now talk by Communists close to the leaders of the need of
seeking Soviet aid. Active .consideration is being given to the crea-

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 89

tion of a unified council of their various independent guerrilla gov-
ernments by the party itself, which is broadcasting demands for Com-
munist and other non-Kuomintang representations at San Francisco.

Despite the fact that our actions in our refusal to aid or deal with
any group other than the Central Government have been diplomati-
cally correct, and our intentions have been good, the conclusion
appears clear that if this situation continues, and if our analysis of
it is correct, the probable outbreak of disastrous civil conflict will be
accelerated and chaos in China will be inevitable.

It is apparent that even for the present this situation, wherein we
are precluded from cooperating with the strategically situated, large
and aggressive armies and organized population of the Communist
areas, and also with the forces like the Li Chi-shen-Tsai Ting-k’ai
group in the southeast, is, from a military standpoint, hampering
and unsatisfactory. From a long-range viewpoint, as set forth
above, the situation is also dangerous to American interests.

If the situation is not checked, it is likely to develop with increas-
ing acceleration, as the tempo of the war in China and the entire Far
East is raised, and the inevitable resolution of the internal conflict in
China becomes more imperative. It will be dangerous to permit
matters to drift ; the time is short.

In the event the high military authorities of the United States
agree that some cooperation is desirable or necessary with the Com-
munists and with other groups who have proved that they are willing
and in a position to fight Japan, it is our belief that the paramount
and immediate consideration of military necessity should be made
the basis for a further step in the policy of the United States. A fa-
vorable opportunity for discussion of this matter should be afforded
by the presence of General Wedemeyer and General Hurley in
Washington.

The initial step which we propose for consideration, predicated
upon the assumption of the existence of the military necessity, is that
the President inform Chiang Kai-shek in definite terms that we are
required by military necessity to cooperate with and supply the Com-
munists and other suitable groups who can aid in this war against
the Japanese, and that to accomplish this end, we are taking direct
steps. Under existing conditions, this would not include forces
which are not in actual position to attack the enemy, such as the
Szechwan warlords. Chiang Kai-shek can be assured by us that we
do not contemplate reduction of our assistance to the Central Gov-
ernment. Because of transport difficulties, any assistance we give to
the Communists or to other groups must be on a small scale at first.
It will be less than the natural increase in the flow of supplies into

90

U. S. RELATIONS WITH CHINA

China, in all probability. We may include a statement that we
will furnish the Central Government with information as to the type
and extent of such assistance. In addition, we can inform Chiang
Kai-shek that it will be possible for us to use our cooperation and
supplies as a lever to restrict them to their present areas and to limit
aggressive and independent action on their part. Also we can indi-
cate the advantages of having the Communists assisted by the United
States instead of seeking direct or indirect help or intervention from
the Soviet Union.

Chiang Kai-shek might also be told, if it is regarded as advisable,
at the time of making this statement to him, that while our endeavor
to persuade the various groups of the desirability of unification has
failed and it is not possible for us to delay measures for the most
effective prosecution of the war any longer, we regard it as obviously
desirable that our military aid to all groups be based upon coordina-
tion of military command and upon unity, that we are prepared,
where it is feasible, and when requested, to lend our good offices to
this end, and although we believe the proposals should come from
Chiang Kai-shek, we would be disposed to support the following :

First, formation of something along the line of a war cabinet
or supreme war council in which Communists and other groups
would be effectively represented, and which would have some part in
responsibility for executing and formulating joint plans for war;
second, nominal incorporation of Communist and other forces se-
lected into the armies of the Central Government, under the opera-
tional command of United States officers designated by Chiang
Kai-shek upon General Wedemeyer’s advice, upon agreement by
all parties that these forces would operate only within their existing
areas or areas which have been specifically extended. However, it
should be clearly stated that our decision to cooperate with any
forces able to assist the war effort will neither be delayed by nor con-
tingent upon the completion of such internal Chinese arrangements.

It is our belief that such a modus operandi would serve as an
initial move toward complete solution of the problem of final entire
unity, and would bridge the existing deadlock in China. The prin-
cipal and over-riding issues have become clear, as one result of the
recent negotiations. At the present time, Chiang Kai-shek will not
take any forward step which will mean loss of face, personal power,
or prestige. Without guarantees in which they believe, the Com-
munists will not take any forward step involving dispersion and
eventual elimination of their forces, upon which depend their
strength at this time and their political existence in the future.
The force required to break this deadlock will be exerted on both

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 91

parties by the step we propose to take. The modus operandi set
forth in these two proposals should initiate concrete military co-
operation, with political cooperation as an inevitable result, and
consequently furnish a foundation for increasing development
toward unity in the future.

The political consultation committee plan, which could function,
if adopted, side by side with the Government and the war council,
would not be excluded by these proposals. It should be anticipated
that the committee would be greatly strengthened, in fact.

Of course, the statements to the Generalissimo should be made
in private, but the possibility would be clearly understood, in case
of his refusal to accept it, of the logical, much more drastic step
of a public expression of policy such as that which was made by
Churchill with reference to Yugoslavia.

The fact of our aid to the Communists and other forces would
shortly become known throughout China, however, even if not
made public. It is our belief that profound and desirable political
effects in China would result from this. A tremendous internal
pressure for unity exists in China, based upon compromise with
the Communists and an opportunity for self-expression on the part
of the now repressed liberal groups. Even inside the Kuomintang,
these liberal groups such as the Sun Fo group, and the minor
parties, were ignored in recent negotiations by the Kuomintang,
although not by the Communists, with whom they present what
amounts to a united front, and they are discouraged and dis-
illusioned by what they regard as an American commitment to the
Kuomintang’s existing reactionary leadership. We would prove we
are not so committed by the steps which we proposed, we would
markedly improve the prestige and morale of these liberal groups,
and the strongest possible influence would be exerted by us by
means of these internal forces to impel Chiang Kai-shek to make
the concessions required for unity and to put his own house in
order.

Such a policy would unquestionably be greatly welcomed by the
vast majority of the people of China, even though not by the very
small reactionary minority by which the Kuomintang is controlled,
and American prestige would be increased by it.

The statement has been made to a responsible American by Sun
Fo himself that if Chiang Kai-shek were told, not asked, regarding
United States aid to Communists and guerrillas, this would do
more to make Chiang Kai-shek come to terms with them than any
other course of action. It is believed by the majority of the people
of China that settlement of China’s internal problems is more a mat-

92

U. S. RELATIONS WITH CHINA

ter of reform of the Kuomintang itself than a matter of mutual
concessions. The Chinese also state, with justification, that Ameri-
can non-intervention in China cannot avoid being intervention in
favor of the conservative leadership which exists at the present time.

In addition, by a policy such as this, which we feel realistically
accepts the facts in China, we could expect to obtain the cooperation
of all the forces of China in the war; to hold the Communists to
our side instead of throwing them into the arms of the Soviet Union,
which is inevitable otherwise in the event the U.S.S.R. enters the
war against Japan; to convince the Kuomintang that its apparent
plans for eventual civil war are undesirable; and to bring about
some unification, even if not immediately complete, that would
furnish a basis for peaceful development toward complete de-
mocracy in the future.

General Hurley strongly opposed the course of action recommended
above and it remained the policy of the United States to supply
military materiel and financial support only to the recognized Chinese
National Government. 8

IV. CHINA AND THE SOVIET UNION

AGENDA FOR DR. SOONG’S MOSCOW CONVERSATIONS

Shortly before his visit to Washington Ambassador Hurley had
raised the question of negotiations between the Chinese National
Government and the Soviet Government. On February 4 the Am-
bassador reported to the Department of State that the Chinese Gov-
ernment contemplated sending Dr. T. V. Soong to Moscow for a
conference as a personal representative of the Generalissimo. He
transmitted a tentative agenda for the conference which the Chinese
Government had prepared and added that the Chinese Government
had asked for changes or suggestions in the agenda. His telegram
concluded as follows :

“In connection with this situation bear in mind that early last
September Ambassador Harriman, Mr. Nelson and myself conferred
with Mr. Molotov on the Soviet attitude toward the Communists in
China, believing that understanding of this was essential to settlement
of the Chinese Communist and National Government controversy.
Mr. Molotov stated roughly as follows :

8 For a detailed account of United States aid to China prior to, during and

subsequent to this period, see chapter I, pp. 26-28, the sections on military aid and
financial aid in Chapters V and VIII, and annexes 171 and 185.

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 93

“ (1) The so-called Chinese Communists are not in fact Communists
at all.

“(2) The Soviet Government is not supporting the Chinese
Communists.

“(3) The Soviets do not desire dissensions or civil war in China.

“(4) The Soviets complain of Chinese treatment of Soviet citizens
in China but frankly desire closer and more harmonious relations in
China. . . . The Chinese are anxious to ascertain if the Soviet
attitude continues as outlined last September by Molotov. On this
I am unable to give any definite assurances for the simple reason that
I do not know.”

In response to this report the Acting Secretary of State, J oseph C.
Grew, informed the Ambassador on February 6 as follows:

“On the subject of your telegram, we feel, and believe you will con-
cur in our opinion, that while we are at all times anxious to be helpful
to the Chinese Government we should not permit the Chinese Govern-
ment to gain the impression that we are prepared to assume responsi-
bility as ‘advisor’ to it in its relations with the USSR. Former Vice
President Wallace, with the subsequent approval of the President,
indicated clearly last summer to Chiang Kai-shek in response to a
suggestion by Chiang that the United States could not be expected to
act as ‘mediator’ between China and Russia. Furthermore, the Presi-
dent in a message to the Generalissimo 9 transmitted through the Em-
bassy in July 1944 stated that a conference between Chinese and
Russian representatives would be greatly facilitated if, prior thereto,
the Chinese Government had reached a working arrangement with the
Chinese Communists for effective prosecution of the war against J apan.
In a message to the Embassy at Chungking in September 1944, the
President and the Secretary expressed views, for communicating by
Ambassador Gauss to Chiang Kai-shek with regard to importance of
reaching such a ‘working arrangement’.

“With particular reference to the proposed agenda, we feel that the
Chinese must reach their own decision with regard to what questions
they should (or should not) discuss with the Russians and that we
ought not take it upon ourselves to place a caveat upon or to sponsor
discussion of any particular question. . . . With reference to your
final and ultimate paragraphs, we have no concrete information which
runs counter to the four points mentioned by you. We appreciate
receiving your report on this matter and hope that you will keep us

• This message and related ones concern the conversations between Vice Presi-
dent WaUace and the GeneraUssimo. They will be found in annex 43 to
chapter II.

94

U. S. RELATIONS WITH CHINA

informed of developments. You will, of course, know best how to
handle discussions on the subject with the Chinese in a manner which
will be helpful to them and unprejudicial to our position.”

By telegram dated February 18 General Hurley answered:

“I had prepared a reply to your message which I did not send. In
your message you appear to have reduced my role in these negotiations
to the position of merely making a suggestion without implementing
the suggestion. That is the method followed by Ambassador Gauss
when he transmitted the President’s and the Secretary of State’s mes-
sage on September 9 last. That message, as you now know, obtained
no results whatever because it lacked vigorous implementation. I
decided, however, not to send the telegram as I hoped to see you and
discuss the situation more fully. It is my earnest desire to be amenable
to every suggestion from the State Department even when I believe
our position is weakened and accomplishment postponed by lack of
vigorous implementation of suggestions. Perhaps this respite in nego-
tiations and my visit with the State Department will clarify in my
mind the distance I will be able to go in promotion of the war effort
by inducing or compelling the unification of Chinese armed forces
and the coordination of effort to assist us in the defeat of Japan.”

AMBASSADOR HURLEY’S INTERVIEW WITH MARSHAL STALIN,
APRIL 15, 1945

After consultation in Washington, the Ambassador departed on
April 3, 1945, for Chungking. He travelled by way of London and
Moscow in order to discuss American policy in China with British
and Soviet leaders. He reported to the Department of State that on
the night of April 15, 1945, he had concluded a conference with
Marshal Stalin and Foreign Minister Molotov in which the Ambassa-
dor, Mr. Harriman, had also participated. With respect to this con-
ference General Hurley reported to the Department that he had
recited for Marshal Stalin in the presence of Mr. Molotov his analysis
of Mr. Molotov’s earlier statement respecting the Soviet attitude
toward the Chinese Communist Party and the National Government.
His report, dated April 17, continued :

“My analysis was briefly as follows: ‘Molotov said at the former
conference that the Chinese Communists are not in fact Communists
at all. Their objective is to obtain what they look upon as necessary
and just reformations in China. The Soviet Union is not supporting
the Chinese Communist Party. The Soviet Union does not desire in-
ternal dissension or civil war in China. The Government of the Soviet
Union wants closer and more harmonious relations in China. The

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 95

Soviet Union is intensely interested in what is happening in Sinkiang
and other places and will insist that the Chinese Government prevent
discriminations against Soviet Nationals.’ Molotov agreed to this
analysis. I then outlined for Stalin and Molotov existing relations
between the Chinese Government and the Chinese Communist Party.
I stated with frankness that I had been instrumental in instituting con-
ferences and negotiations between the Chinese Communist Party and
the Chinese Government. I then presented in brief form an outline
of the negotiations, of the progress which had been made and of the
present status. I informed Stalin that both the Chinese Government
and the Chinese Communist Party claimed to follow the principles of
Sun Yat-sen for the establishment of a government of the people, by
the people and for the people in China. I continued that the National
Government and the Chinese Communist Party are both strongly anti-
Japanese and that the purpose of both is to drive the Japanese from
China.- Beyond question there are issues between the Chinese Com-
munist Party and the Chinese Government, but both are pursuing the
same principal objective, namely, the defeat of Japan and the creating
of a free, democratic and united government in China. Because of
past conflicts there are many differences on details existing between
the two parties. I made clear American insistence that China supply
its own leadership, arrive at its own decisions, and be responsible for
its own policies. With this in mind, the United States had endorsed
China’s aspirations to establish a free, united government and sup-
ported all efforts for the unification of the armed forces of China. I
informed him that President Roosevelt had authorized me to discuss
this subject with Prime Minister Churchill and that the complete
concurrence of Prime Minister Churchill and Foreign Secretary Eden
had been obtained in the policy of endorsement of Chinese aspirations
to establish for herself a united, free, and democratic government and
for the unification of all armed forces in China in order to bring about
the defeat of Japan. To promote the foregoing program it had been
decided to support the National Government of China under the lead-
ership of Chiang Kai-shek. Stalin stated frankly that the Soviet
Government would support the policy. He added that he would be
glad to cooperate with the United States and Britain in achieving
unification of the military forces in China. He spoke favorably of
Chiang Kai-shek and said that while there had been corruption among
certain officials of the National Government of China, he knew that
Chiang Kai-shek was ‘selfless’, ‘a patriot’ and that the Soviet in times
past had befriended him. I then related to Stalin and Molotov the
request made by the Chinese Communists for representation at the
San Francisco Conference. I told them that before leaving China I

96

U. S. RELATIONS WITH CHINA

had advised the Chinese Communists that the conference at San
Francisco was to be a conference of governments and not of political
parties and that I had advised the Communists to request representa-
tion at San Francisco through the National Government of the Re-
public of China. I told him that this decision had been upheld by
President Roosevelt and that the President had advised Chiang Kai-
shek of the advisability of the National Government’s permitting the
Chinese Communist Party to be represented on the Chinese National
Government’s delegation to the conference at San Francisco. I told
the Marshal that it was a very hopeful sign when Chiang Kai-shek
offered a place on the delegation to San Francisco to a Chinese Com-
munist and that the appointment had been accepted. I told Stalin
that I thought it was very hopeful that a leading member of the
Chinese Communist Party would be a delegate of the Chinese National
Government at San Francisco. Stalin agreed that this development
was very significant and he approved. I told him that President
Roosevelt and Prime Minister Churchill had indicated their approval
of the policy outlined. The Marshal was pleased and expressed his
concurrence and said in view of the over-all situation, he wished us
to know that we would have his complete support in immediate action
for the unification of the armed forces of China with full recognition
of the National Government under the leadership of Chiang Kai-shek.
In short, Stalin agreed unqualifiedly to America’s policy in China as
outlined to him during the conversation.”

COMMENTS ON AMBASSADOR HURLEY’S REPORT

Although Mr. Harriman was present during the conversation re-
ported in the foregoing communication, he departed for Washington
on consultation before the communication was sent. The Charge
d’Affaires in Moscow, George Kennan, sent a telegram dated April 23
to Mr. Harriman personally in Washington commenting in part as
follows :

“In view of your familiarity with the matter and the opportunity
that you now have for stating your own views to the Department I
am of course making no comment on my own to the Department
regarding the report of Ambassador Hurley nor did I make any to him
since your views were not known to me, but I do want to let you know
that it caused me some concern to see this report go forward. I refer
specifically to the statements which were attributed to Stalin to the
effect (1) that he expressed unqualified agreement with our policy in
China as Ambassador Hurley outlined it to him, (2) that this policy
would be supported by the Soviet Government and (3) that we would

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 97

have his complete support, in particular, for immediate action directed
toward the unification of the armed forces of China with full recog-
nition of the Chinese National Government under the leadership of
Generalissimo Chiang Kai-shek. . . .

“There was, of course, nothing in Ambassador Hurley’s account of
what he told Stalin to which Stalin could not honestly subscribe, it
being understood that to the Russians words mean different things
than they do to us. Stalin is of course prepared to affirm the principle
of unifying the armed forces of China. He knows that unification is
feasible in a practical sense only on conditions which are acceptable to
the Chinese Communist Party. . . .

“Actually I am persuaded that in the future Soviet policy respect-
ing China will continue what it has been in the recent past : a fluid
resilient policy directed at the achievement of maximum power with
minimum responsibility on portions of the Asiatic continent lying
beyond the Soviet border. This will involve the exertion of pressure
in various areas in direct proportion to their strategic importance and
their proximity to the Soviet frontier. I am sure that within the
framework of this policy Moscow will aim specifically at: (1) Reac-
quiring in substance, if not in form, all the diplomatic and territorial
assets previously possessed on the mainland of Asia by Russia under
the Czars. (2) Domination of the provinces of China in central Asia
contiguous to the Soviet frontier. Such action is dictated by the
strategic necessity of protecting in depth the industrial core of the
U.S.S.R. (3) Acquiring sufficient control in all areas of north China
now dominated by the Japanese to prevent other foreign powers from
repeating the Japanese incursion. This means, to the Russian mind,
the maximum possible exclusion of penetration in that area by outside
powers including America and Britain. . . .

“It would be tragic if our natural anxiety for the support of the
Soviet Union at this juncture, coupled with Stalin’s use of words which
mean all things to all people and his cautious affability, were to lead us
into an undue reliance on Soviet aid or even Soviet acquiescence in the
achievement of our long term objectives in China.”

On April 19, 1945, Ambassador Harriman discussed General Hur-
ley’s report with Mr. E. F. Stanton of the Office of Far Eastern Affairs
of the Department of State.

The memorandum of conversation indicated that Mr. Harriman
felt that General Hurley’s report, while factually accurate, gave a
“too optimistic impression of Marshal Stalin’s reactions.” Mr. Harri-
man was certain that Marshal Stalin would not cooperate indefinitely
with Chiang Kai-shek and that if and when Russia entered the conflict

98

U. S. RELATIONS WITH CHINA

in the Far East he would make full use of and would support the Chi-
nese Communists even to the extent of setting up a puppet government
in Manchuria and possibly in North China if Kuomintang-Communist
differences had not been resolved by that time. He indicated that he
had impressed on General Hurley the fact that statements made by
Stalin endorsing our efforts in China did not necessarily mean that the
Russians would not pursue whatever course of action seemed to them
best to serve their interests. Mr. Harriman feared that Ambassador
Hurley might give Chiang Kai-shek an “over-optimistic account of
his conversations with Stalin” and he thought it might be advisable
to suggest to General Hurley that he should be careful “not to arouse
unfounded expectations.” On April 23 Secretary Stettinius in-
structed Ambassador Hurley as follows :

“I attach great importance to Marshal Stalin’s endorsement at the
present time of our program for furthering the political and military
unity of China under Generalissimo Chiang Kai-shek. However, at
the same time I feel, as I have no doubt you do also, the necessity of
facing the probability that Marshal Stalin’s offer is given in direct
relation to circumstances that are existing now and that may not long
continue. The U.S.S.R. is at present preoccupied in Europe and the
basis for her position in Asia following the war is not yet affected
by the Communist-Kuomintang issue to an appreciable degree. In
view of these circumstances I can well appreciate the logic of Marshal
Stalin’s readiness to defer to our leadership and to support American
efforts directed toward military and political unification which could
scarcely fail to be acceptable to the U.S.S.R. If and w'hen the Soviet
Union begins to participate actively in the Far Eastern theater,
Chinese internal unity has not been established and the relative ad-
vantages of cooperation with one side or the other become a matter of
great practical concern to the future position of the Soviet Union in
Asia, it would be equally logical, I believe, to expect the U.S.S.R. to
reexamine Soviet policy and to revise its policy in accordance with its
best interests. Consequently I believe that it is of the utmost impor-
tance that when informing Generalissimo Chiang Kai-shek of the
statements made by Marshal Stalin you take special pains to convey
to him the general thought expressed in the preceding paragraph in
order that the urgency of the situation may be fully realized by him.
Please impress upon Generalissimo Chiang Kai-shek the necessity for
early military and political unification in order not only to bring about
the successful conclusion of the Japanese war but also to establish
a basis upon which relations between China and the Soviet Union may
eventually become one of mutual respect and permanent friendship.”

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 99

AMBASSADOR HURLEY’S REVIEW OF SOVIET-CHINESE
COMMUNIST RELATIONS

General Hurley following his return to Chungking, in a report dis-
cussing negotiations between the Chinese Government and the Chinese
Communist Party stated early in July 1945 :

“We are convinced that the influence of the Soviet will control the
action of the Chinese Communist Party. The Chinese Communists
do not believe that Stalin has agreed or will agree to support the
National Government of China under the leadership of Chiang Kai-
shek. The Chinese Communists still fully expect the Soviet to sup-
port the Chinese Communists against the National Government.
Nothing short of the Soviet’s public commitment will change the
Chinese Communists’ opinion on this subject. . . . Before the Yalta
Conference, 9a I suggested to President Roosevelt a plan to force the
National Government to make more liberal political concessions in
order to make possible a settlement with the Communists. The Presi-
dent did not approve the suggestion.

“I believe the Soviet’s attitude toward the Chinese Communists is
as I related it to the President in September last year and have re-
ported many times since. This is also borne out by Stalin’s state-
ment to Hopkins and Harriman. Notwithstanding all this the Chinese
Communists still believe that they have the support of the Soviet.
Nothing will change their opinion on this subject until a treaty has
been signed between the Soviet and China in which the Soviet agrees
to support the National Government. When the Chinese Communists
are convinced that the Soviet is not supporting them, they will settle
with the National Government if the National Government is realistic
enough to make generous political settlements. The negotiations
between the National Government and the Communist Party at this
time are merely marking time pending the result of the conference at
Moscow. 10

“The leadership of the Communist Party is intelligent. When the
handwriting is on the wall, they will be able to read. No amount of
argument will change their position. Their attitude will be changed
only by inexorable logic of evepts. The strength of the armed forces
of Chinese Communists has been exaggerated. The area of territory
controlled by the Communists has been exaggerated. The number of

9a See chapter IV.

0 This refers to the negotiations between T. V. Sooiig and Molotov in Moscow
which began early in July, and were continued intermittently throughout
July and August culminating in the signing of the Sino-Soviet Treaty of Friend-
ship and Alliance and related agreements in Moscow on Aug. 14, 1945. These
negotiations are discussed in chapter IV.

100

U. S. RELATIONS WITH CHINA

Chinese people who adhere to the Chinese Communist Party has been
exaggerated. State Department officials, Army officials, newspaper
and radio publicity have in a large measure accepted the Communist
leaders’ statements in regard to the military and political strength
of the Communist Party in China. Nevertheless, with the support of
the Soviet the Chinese Communists could bring about civil war in
China. Without the support of the Soviet the Chinese Communist
Party will eventually participate as a political party in the National
Government.”

V. FURTHER GOVERNMENT-COMMUNIST
NEGOTIATIONS

SIXTH KUOMINTANG CONGRESS, MAY 1945

The Sixth Plenary Session of the Kuomintang Congress was inaug-
urated in Chungking in May 1945. In commenting on the opening
address of the session by Generalissimo Chiang, the Ambassador noted
that the Generalissimo made no direct reference to the Communist
program although he obviously did nothing to close any door against
Communism. The Generalissimo had recently held two conferences
with the Ambassador on the subject of unification of all anti- Japanese
armed forces in China and had stated that while the situation was
not moving as rapidly as desired, progress with the Communists was
being made.

On May 17, 1945, the Kuomintang Congress passed a resolution
concerning the Chinese Communist problem. This resolution stated
that the Kuomintang had consistently striven for China’s freedom
and equality through national unity and the prosecution of the war,
while the Chinese Communist Party, despite its pledges of 1937, “had
persisted in armed insubordination.” The resolution pointed out
that with the convening of the National Assembly in sight it would
be possible to establish a constitutional government “in the not distant
future.” It was hoped that the Communists would not fail to appre-
ciate the difficulties confronting the nation and that an amicable
solution would be reached.

In another resolution adopted on May 16, 1945, the Kuomintang
Congress stated that China harbored no territorial ambitions; that all
China wanted was the preservation of its territorial and administra-
tive integrity and fair and equal treatment for all its nationals over-
seas ; that it was hoped that the five great powers would continue to
cooperate after the war ; that friendly cooperation between the Soviet
Union and China was especially necessary; that China would do

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 101

everything possible to ensure the success of the San Francisco Con-
ference; and that national unity and a constitutional government
were the cherished objectives of Kuomintang endeavor.

In a report to the Department, early in June, 1945, Ambassador
Hurley stated :

“In the view of the Chinese government the principal achievements
of the recently concluded Sixth Kuomintang Congress are as follows :

“1. All Kuomintang Party headquarters in the army will be abol-
ished within three months. Similar action will be taken in the
schools.

“2. Within six months local representation councils will be estab-
lished in all provinces and districts in free China on the basis of
popular elections.

“3. A law to give legal status to political parties will be promul-
gated and the government hopes that the Communist Party will
qualify thereunder. In this connection, the government has re-
iterated its intention to seek settlement of the Communist problem
through negotiations.

“4. Measures have been decided upon with a view to improving
the position of peasant farmers; reduction of renting; questions of
land tenure and land taxation.

“5. A decision to hold a national assembly was confirmed and it is
scheduled to convene on November 12, 1945.

“The question of membership in the National Assembly will be
referred to the People’s Political Council on which it is anticipated
that all parties will be represented.” 11

“General Hurley subsequently reported that the First Plenary Session of
the Fourth People’s Political Council convened in Chungking on July 7, 1945,
with 218 of 290 members present. The eight Communist members were not
present ; a few of the twelve Democratic League Members attended. He further
reported that on July 19 the Council adopted the following resolutions (as
published In the Central News Agency): “(1) The date for the convocation
of the National Assembly is to be left to the discretion of the government. (2)
The membership of the Assembly with due regard to the legal and practical
aspects of the issue and in accord with the opinions of the P. P. C. members
should provide the fullest possible representation of all classes of the people
In the country. (3) When a constitution is adopted, a constitutional govern-
ment shall be inaugurated. (4) Prior to the convocation of the Assembly,
the government should continue to improve all available political means for
obtaining national unity and solidarity, to insure freedom of opinion, of publica-
tion, of assembly, and of organized political societies and should enforce the
Habeas Corpus Act, recognize the legal status of various political parties and
cause the setting up of people’s representative organs in all provinces of
free China in order to lay a solid foundation for local self-government.”

102

U. S. RELATIONS WITH CHINA

THE COMMITrEE OF SEVEN

Late in June, the Ambassador reported that pursuant to measures
adopted by the Sixth Kuomintang Congress the Government had
appointed a committee of seven persons including members of the
Kuomintang and of the Democratic League and political independents
to negotiate with the Communists. The Ambassador said that the
Government thereupon sent a message to Mao Tse-tung, Chairman
of the Chinese Communist Party, and Chou En-lai, Vice Chairman,
offering to have this committee negotiate with representatives of the
Communist Party for a unification of the armed forces of China for
the purpose of defeating Japan. The Government had agreed to
the recognition of the Communists as a political party in China but
declined to recognize it as an armed belligerent or insurrection group.
The Communists did not immediately answer and put forth consider-
able propaganda including a “somewhat defiant” broadcast from
Yenan on June 20 saying among other things that the Chinese Com-
munist Party would not participate in either the People’s Political
Council meeting to be held in Chungking beginning July 7 or the
November Assembly. The Ambassador said that the Government had
just received a reply from Mao Tse-tung and Chou En-lai, indicating
that they would resume negotiations with the Government. Ambas-
sador Hurley added :

“Although the Communist Party of China had unquestionably been
endeavoring recently to bring about clashes between the Communist
troops and those of the Government (and has succeeded in causing
some clashes, the importance of which had been exaggerated in some
quarters), the logic of events seems to now be convincing the Com-
munists that their best interests as a political party may be served
by coming to an agreement with the National Government rather than
attempting to destroy it. The decision to resume negotiations does
not mean that the conflict has been solved. The end is not as yet in
sight but the situation seems definitely improved.”

The members of the committee referred to above called on the Am-
bassador on June 27, 1945, and informed him that the committee had
been formed to discuss the problem of unifying China, stating that
the three political independents had been appointed by the People’s
Political Council and that the others had volunteered their services.
They added that they had called upon the Ambassador to seek his
assistance and advice. The Ambassador replied that while he wished
to be helpful, the Chinese “should not ask a foreigner to make their
decisions for them.” His report of this meeting added:

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 103

“I suggested that the committee should go over all the proposals and
counter-proposals made by the Kuomintang and the Communists dur-
ing the past six months or so, and from them endeavor to evolve a
formula which might be acceptable to both sides. I believed that,
as American Ambassador, it would not be proper for me to express
an opinion on the merits of the Five-Point Communist Proposal or
the Three-Point Kuomintang Proposal. ... I said that, when the
committee had concluded its deliberations in Chungking, I would be
glad to provide a plane to take them to Yenan for discussions with the
Communists. I stated that if, when discussions were under way at
Yenan, both the Communists and others wished me to join in the con-
versations, I would be happy to do so. I urged that all Chinese taking
part in the deliberations and discussions should not do so as members
of the Kuomintang, Democratic League, Communist Party, or any
other party or group, but as patriotic Chinese who were endeavoring
earnestly to bring about a free, united, and democratic China.”

On June 28, 1945, General Wang Jo-fei, the ranking Chinese Com-
munist in Chungking at the time, called on the Ambassador. The
Counselor of the Embassy, who was. also present during the discussion,
made a summary of their conversation. The Ambassador recalled to
General Wang that he had been instrumental in obtaining the inclusion
of a Communist delegate in the Chinese Government delegation to the
San Francisco Conference. He recalled also that he had made a trip
to Yenan to confer with Mao Tse-tung and had brought Chou
En-lai and others to Chungking twice for the purpose of negotiating
with the Government for a settlement. The Ambassador said that he
had done more in an effort to bring about a just settlement between
the Communists and the Government than any other one man. He
said he had been presented in the Communist press in China and else-
where as being opposed to the Chinese Communists. The Ambassador
said that he realized that much of the abuse was coming from people
who were opposed to the National Government of China and did not
desire the unification of National and Communist armies in China.
He said that notwithstanding all these unjust and untrue accusations
he was the best friend the Chinese Communists had in Chungking.

The Ambassador recalled that he had assisted them in drafting
the Communist Five-Point Proposal. He had presented that pro-
posal to the Generalissimo. The Ambassador said that he believed
the press and other attacks on him constituted an attempt to keep the
Communists and the Kuomintang apart by persons who wished, for
their own selfish reasons, to prevent the creation of a free, united,
democratic and strong China. General Wang stated frankly that
real communism in China under present conditions was impossible.

104

U. S. RELATIONS WITH CHINA

The General stated, however, with perfect candor that the Party now
supported democratic principles but only as a stepping stone to a
future communistic state.

The Ambassador said that he had provided a plane to take the Com-
mittee of Seven and General Wang to Yenan on July 1; that the
committee had requested his assistance in the discussion, but that he
would not do so unless requested by the Communists. The Ambassa-
dor inquired whether the Communists would be willing to join a
steering committee to advise throughout the transition period
(remainder of the “period of tutelage” which would presumably end
with the adoption of a constitution by the National Assembly opening
on November 12) and suggested ways and means to improve the
Government. General Wang replied that this would depend on
whether the committee had real power ; if it were only to be a commit-
tee without real authority, then it would not be acceptable.

The Ambassador recalled that he had brought the Communist Five-
Point Proposal to Chungking where some Government officials had
told him that he had “been sold a bill of goods” by the Communists.
However, he felt that he was making progress in convincing the Gen-
eralissimo that the proposals were generally reasonable.

General Chou En-lai had asked that the four conditions he had
proposed on December 28, 1944, be met by the National Government as
conditions precedent to any agreement by the Communists on the
Five Points which they themselves had submitted through the Am-
bassador. The Ambassador remarked that the Government had
already withdrawn some sixty thousand troops from the north; there
was considerable freedom of speech and press (the Communist news-
paper was allowed to be published in Chungking) ; the secret police
were necessary in war time to deal with important security matters as
witness the FBI and England’s Scotland Yard. The Ambassador said
that if the Five-Point Proposal were agreed to, the Communists would
then be a part of the Government and would themselves take a hand in
the settlement of the questions included in the Four-Point Proposal
which Chou En-lai had sent to General Hurley on December 28, 1944.

General Wang believed that the Five-Point Proposal with some
alterations would still be acceptable to the Communists as a basis for
negotiations, indicating, however, that they would like to see the four
points accepted before agreeing on the five points. The Ambassador
told General Wang that he believed the Five-Point Proposal of the
Communists and the Three-Point Proposal of the Government con-
tained in themselves sufficient basis for an agreement between the
parties.

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 105

General Wang requested that, while the Committee of Seven was
engaged in conversations with the Communists at Yenan, the Ambas-
sador endeavor to persuade the Generalissimo to accept the Four-
Point Proposal as a condition precedent to further negotiations. The
Ambassador replied that for the reasons already stated, he could not
do so. Action on the four points should come after and not before
an agreement with the armed Communist Party. The Ambassador
stated frankly that nearly everyone familiar with the situation was of
the opinion that if the Generalissimo conceded the four points prior
to an agreement, the Communists would not enter into any agreement
at all.

The above-mentioned committee went to Yenan by air on July 1,
1945, and returned on July 5 bearing a document containing new Com-
munist proposals. According to Dr. Wang Shih-chieh, then Minister
of Information of the Chinese Government, these proposals covered
principally two main points: (1) that the National Chinese Govern-
ment call off the National Assembly scheduled for November 12, 1945,
and (2) that the Chinese Government summon a political conference
composed on a basis of equality of three members of the Kuomintang,
three members of the Chinese Communist Party and three members of
the Democratic League, with an additional three members to be chosen
from independent political parties or organizations. General Hurley’s
own opinion was that this was the Communists’ way of playing for
time awaiting the results of the Soong Conference at Moscow.

AMBASSADOR HURLEY’S DEPARTURE

Negotiations between the Communist representatives and the Na-
tional Government continued throughout August. Mao Tse-tung
accompanied by General Hurley who had gone to Yenan for this
purpose, arrived in Chungking on August 28, 1945, and remained for
about a month. The unexpected acceptance by Mao of the invitation
to visit Chungking may well have been precipitated in part by the
announcement of the Sino-Soviet Treaty of August 14, 1945, which
pledged Russian support of the National Government as the only
government of China. The Ambassador departed from Chungking
for consultation in the United States on September 22, 1945, and
arrived in Washington four days later. Shortly before his departure
he submitted the following report regarding the negotiations then
being conducted in Chungking between the National Government and
Communist representatives :

“(1) The negotiators have agreed that they will collaborate for the
establishment of a democratic government in China for the reconstruc-
tion of China and the prevention of civil war.

106

U. S. RELATIONS WITH CHINA

“(2) Both have agreed to support the leadership of Chiang Kai-
shek as President of the Republic.

“(3) They have further agreed that both parties will support the
doctrines of Sun Yat-sen and will cooperate for the establishment in
China of a strong, democratic government.

“(4) The Communists have agreed that they will recognize the
Kuomintang as the dominant party in control of the government and
will cooperate with that party during the period of transition from
the present form of government to a democratic regime.

“(5) Numerous other questions, including the release of political
prisoners, freedom of person, speech, press, belief, assembly and asso-
ciation were agreed upon.

“There are two important points on which the conferees are not yet
in agreement, although both parties have made concessions toward
making agreement possible. One point is that the Communists claim
the right to appoint, select, or elect any Communist governors or
mayors in certain provinces. The Government contends that until a
constitution has been adopted and a democratic government inaug-
urated the prerogative of appointing governors and officials is vested
in the President of the Republic. . . . The Government considers
that this should not be changed until the transitory period from the
present government to a constitutional government has been achieved.
Both parties agree to work together during the transitional period.
The next point on which the parties have approached an agreement but
have not finally agreed is the number of Communist troops that are to
be included in the National peace-time army of China. The Commu-
nists first contended that they should have 48 Communist divisions.
It was pointed out by the Government that the present plan calls for
a peace-time army consisting of 80 to 100 divisions, and that the Com-
munists, who the Nationalists claim are in minority, are claiming the
right to approximately one-half of the peace-time army. . . . This,
the Nationalists refuse to agree to, but they have offered the Commu-
nists 20 divisions, or what will constitute approximately one-fifth of
the planned peace-time army. Chairman Mao Tse-tung said that they
did not reject the offer but that the Communists wanted to give it
further consideration.

“The overall achievement in this conference has been to keep the
Communists and the Nationalists talking peace-time cooperation dur-
ing the period for which civil war has been predicted by nearly all
the elements who are supporting a policy to keep China divided against
herself. The conferences will continue. Mao Tse-tung is remaining
in Chungking. The Generalissimo had given Mao his word and
pledged his character for the safe conduct of Mao and his* party. He

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 107

has agreed to give Mao and his party transportation to Yenan at any
time they wish to discontinue the conferences.

“I told the Communists and Government negotiators last night that
in my opinion they were attempting to settle too many details. ... I
said that if they could agree on basic overall principles, details could
be worked out in accordance with such principles.

“The spirit between the negotiators is good. The rapprochement
between the two leading parties of China seems to be progressing, and
the discussion and rumors of civil war recede as the conference
continues.”

The Embassy at Chungking reported that the Ambassador had de-
layed his departure from September 18 to September 22, to remain in
China an additional four days upon the earnest request of both the
Chinese Communist representatives and the Chinese Government ne-
gotiators “to render assistance in reaching agreement.” The Embassy
added “for the Department’s information, both parties have expressed
deep appreciation of the cooperation and assistance of the Ambassador.
They have agreed upon a paragraph to be included in their proposed
final resolution thanking the Ambassador for his great services to
China in bringing about the conference and in his general helpfulness
as mediator during the negotiations.” In a letter to President Truman
dated September 17, 1945, President Chiang stated that “General
Hurley’s wise statesmanship and human qualities have won the respect
and affection of the Chinese people who see in him a fitting symbol of
American foreign policy of fair-play and justice. I have talked with
General Hurley at length and with perfect frankness regarding the
policy of my government on various questions, and have asked him to
acquaint you, Mr. President, with the various aspects which have
a bearing on the implementation of continued close collaboration be-
tween China and the United States in the maintenance of peace and
order in the Far East.”

CONTINUING NEGOTIATIONS AT CHUNGKING

Negotiations continued in Chungking between the Chinese Com-
munists and the National Government following the departure of the
Ambassador. Early in October, Dr. K. C. Wu, the Minister of Infor-
mation of the Chinese Government, requested the Embassy at Chung-
king to convey the following message to General Hurley :

“The Chinese Communists have agreed to accept the proposal by
the National Government that they be allotted 20 divisions in the
National Army. A military commission will decide how soon the
forces of the Chinese Communists can be organized into 20 divisions.

108

U. S. RELATIONS WITH CHINA

The Chinese Communists will be represented on this commission by
the Chief of Staff, General Yeh Chien-ying and certain other officers
designated by him. The National Government will be represented by
General Lin Wei-wen, Vice Minister of War, and General Liu Pei,
Vice Minister of Military Operations.

“Furthermore, agreement has been reached that prior to the estab-
lishment of a constitutional government the National Government will
organize a political council of 37 members. This council will represent
independents and all parties. The council will consider and make
recommendations regarding (1) a draft constitution for submission
to a people’s congress, (2) whether a people’s congress should be con-
vened on November 12 as planned or postponed to a later date, and
(3) a policy for peaceful reconstruction.

“The Chinese Communists proposed that the council adopt a ‘system
of absolute veto’. The representatives of the National Government
have not yet agreed to this proviso which would mean that all pro-
posals would have to receive unanimous approval before they became
effective.

“Discussions of the political council shall be open to the public
and not secret. Decisions adopted by it shall be final and conclusive.
Resolutions which are adopted by it shall be carried out in accordance
with due process of law by the National Government.”

Mao Tse-tung returned to Yenan by plane on October 11, 1945.
Just prior to his departure, General Chou En-lai discussed the progress
of negotiations with a member of the staff of the American Embassy.
From this conversation it appeared that a joint Government-Com-
munist statement, which would probably be made public on the day
of Mao’s departure for Yenan, was being prepared. The points of
agreement were set forth in an official statement issued on October 11.
Chou said that the only principal point remaining on which some sort
of agreement had not been reached was the question of the government
of liberated areas which were then under control of the Chinese Com-
munists; in particular he mentioned the provinces of Hopei, Shan-
tung, and Chahar. According to Chou the Chinese Communist Party
desired that the governors of the liberated areas be appointed by a
council which would be elected from districts and villages. He added
that the Government was agreeable to elections in the districts and
villages but insisted that the Central Government appoint directly
provincial governors. In the opinion of the Embassy the two sides
were far from agreement on the basic question of political control in
the liberated areas now dominated by the Chinese Communists. On
October 11 the Government released the text of the agreement with the

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 109

Communists. 12 The important feature of this agreement was that it
called for the convening of the Political Consultation Conference for
the implementation of the agreed general principles. General Mar-
shall was later to assist in this effort.

In mid-October 1945 the Embassy at Chungking reported that it
had been informed that Wang Jo-Fei had returned from Yenan, that
Governor Chang Chun of Szechwan would arrive in Chungking in a
few days and that upon his arrival he, together with Dr. Wang Shih-
chieh, then Minister of Foreign Affairs, and Shao Li-tze, Secretary
General of the People’s Political Council, would represent the Chinese
Government in renewed conversations with the Communists, Chou
En-lai and Wang Jo-Fei. The conversations would cover matters
relating to the following subjects: (1) the Political Consultative
Council; (2) liberated areas; and (3) the National Assembly. It
was expected that the conversations would last for about ten days.
Upon conclusion of the conversations Chou En-lai would carry back
the proposals to Yenan for decision by the Chinese Communist au-
thorities. The Chinese Communist authorities would then appoint
delegates who would come to Chungking to attend the Political Con-
sultative Conference, which it was anticipated would be held early in
November. It had been decided that General Yeh Chien-ying, Chief
of Staff of the 18th Army Group, would come to Chungking with the
Communist delegates, probably as a delegate himself and also to serve
as a Communist member of the subcommittee of three to discuss
military questions. The Embassy at Chungking felt that the Com-
munist representative was “definitely much more optimistic” than
he had previously been with respect to the likelihood of an eventual
agreement between the Central Government and the Communists, and
had expressed great satisfaction over the announcement in the press
that Ambassador Hurley would shortly return to China.

Although a published statement issued by Dr. K. C. Wu, the
Chinese Minister of Information, on October 27 indicated that the
Government-Communist conversations were “progressing in a cor-
dial atmosphere,” Wang Ping-nan, a Communist representative at
Chungking, informed the Embassy that recent negotiations had made
no progress. He expressed the opinion that the Government appar-
ently intended to play for time while securing military control over
areas liberated by the Communists, and he voiced the Communist re-
sentment of what he termed “American intervention” in landing troops
at many points in North China to hold them pending the arrival of
Government troops, large elements of which had been flown north by
the United States Air Force. 13 According to the Embassy, he at first

12 See annex 49.

a For an account of military operations in 1945 see chapter VII.

110

U. S. RELATIONS WITH CHINA

parried a query in regard to the Manchurian situation but afterwards
said there were in that area a few Eighth Route Army personnel.
In the main, he said, there had been a rising up of the common people.
He expressed the view that the U.S.S.R. would not interfere in in-
ternal conflicts in China, preferring to let the Chinese work out their
own problems unless the United States should give active aid to the
Kuomintang, in which event the U. S. S. R. might find some action
necessary.

CLASHES BETWEEN COMMUNIST AND NATIONAL TROOPS

On November 4, the Embassy at Chungking reported that in the
opinion of the Military Attache the threat of widespread civil war
in China seemed to be growing. The Embassy pointed out that the
gravity of the situation was demonstrated by the postponement of the
convocation in Chungking of the newly organized Political Consulta-
tive Conference in deference to discussions between the National Gov-
ernment and the Communists regarding a military truce. The princi-
pal weapon of the Communists in their efforts to prevent the Central
Government from occupying areas dominated by them was the ef-
fectiveness of Communist troops against the railroads in those areas.
The Embassy had learned that the Communists had offered to refrain
from attacking lines of communication only if the Government prom-
ised to stop the movement of Government troops into North China.
Since the Government had flatly refused so to do, the Embassy felt
that the situation seemed “almost hopeless.”

POSTPONEMENT OF THE POLITICAL CONSULTATIVE
CONFERENCE

On November 10, 1945, Dr. K. C. Wu informed the Embassy in
Chungking that on October 30 the Government had made the follow-
ing six proposals in writing to the Communists :

“(1) Both sides to give orders to their troops to remain wherever
they are and not to attack the other side ; (2) the Communists to with-
draw their troops from places along railways which they have been
raiding and the Government will undertake not to send troops to those
places — these sections to be guarded entirely by railway police; (3) a
communications supervisory committee to be organized by the People’s
Political Council with members of the People’s Political Council as
well as other disinterested representatives from the various concerned
localities to carry out inspections along the railway lines and report
their findings about the situation ; (4) in case the Government finds it
necessary to move troops along the Peiping-Suiyuan Railroad, the
Tatung-Puchow, the Tsingtao-Tsinan, the northern section of the

AMBASSADORSHIP OF MAJOR GENERAL PATRICK J. HURLEY 111

Pinghan Railroad, the eastern section of the Lunghai Railroad and the
northern section of the Tientsin-Pukow, the Government will consult
the Communists first in order to reach agreement; (5) both sides
should endeavor earnestly within one month to reach a fundamental
arrangement about reorganization of Communist troops and the allot-
ment of places where they will be stationed ; (6) the proposed People’s
Consultative Council should be convened at once.” In connection with
the last point, Dr. Wu said that everyone but the Communists had
already named delegates to the Political Consultative Conference,
which would consist of 8 Government, 7 Communist, 13 Third Party,
and 9 non-partisan members.

Dr. Wu stated that the Communists had not replied until November
8 and that their reply took the form of counter-proposals which were
highly unsatisfactory to the National Government.

The Political Consultative Conference scheduled to meet on Novem-
ber 20 failed to convene with resulting increased pessimism in Chung-
king regarding further negotiations. On November 25, General Chou
En-lai departed from Chungking for Yenan and on the following
day Wang Ping-nan followed him. On November 27, a provisional
list of delegates to the Political Consultative Conference was finally
released to the press.

On December 1, Wang Ping-nan returned to Chungking; on De-
cember 3, he called at the Embassy at Chungking and said that the
Chinese Communist leaders had definitely decided to participate in
the Political Consultative Conference and that five of the seven Com-
munist delegates had been selected. He said that the remaining two
would be selected and the group would fly to Chungking for a meeting
to be held possibly about December 10. He would not venture an opin-
ion as to the outcome of the Conference but admitted the great im-
portance of the meeting to the future of China. In this connection, he
said that future developments in China depended even to a greater ex-
tent, however, on American policy toward China and that therefore the
Communists were eagerly awaiting the arrival of General Marshall and
an expected clarification of the American position. 14 The Embassy
at Chungking reported that during this conversion “Wang made a
particular point of stating that Soviet policy is one thing but that
Chinese Communist policy is their own and independent of the Soviet
policy. In an apparent effort to counter recent charges in the Chinese
Government press, he emphasized that the Chinese Communists are
particularly desirous of maintaining cordial relations with the United

14 On Nov. 27, 1945, President Truman announced the appointment of General
Marshall as his Special Representative in China. For an account of General
Marshall’s mission, see chapter V.

112

U. S. RELATIONS WITH CHINA

States, recognizing that China must have American assistance in the
postwar period.” The Communist representatives to the Political
Consultative Conference failed, however, to arrive in Chungking until
December 17 with resulting delay in the convocation of the Conference.

VI. THE RESIGNATION OF AMBASSADOR

HURLEY

Meanwhile, Ambassador Hurley had submitted his resignation in a
letter to the President, dated November 26, and his resignation had been
accepted by the President in a letter of the following day. 10 The post
remained vacant until the appointment of Ambassador Stuart on
July 11, 1946.

18 For text of General Hurley’s letter, see annex 50. On December 7, 1945, Sec-
retary of State Byrnes answered in a public hearing before the Senate Foreign
Relations Committee the charges against certain officers of the Department of
State which General Hurley had raised in his letter of resignation and which he
had amplified before the same committee on December 5 and 6.

CHAPTER IV

The Yalta Agreement and the Sino- Soviet
Treaty of 1945

I. THE YALTA AGREEMENT, FEBRUARY 11, 1945

TEXT OF THE AGREEMENT

On behalf of the United States, Great Britain and the U.S.S.R. on
February 11, 1945, Roosevelt, Churchill and Stalin signed at Yalta an
agreement containing the political conditions upon which the Soviet
Union would enter the war against Japan. 1 This agreement reads as
follows :

“The leaders of the three Great Powers — the Soviet Union, the
United States of America and Great Britain — have agreed that in two
or three months after Germany has surrendered and the war in Europe
has terminated the Soviet Union shall enter into the war against Japan
on the side of the Allies on condition that :

“1. The status quo in Outer-Mongolia (The Mongolian People’s
Republic) shall be preserved ; 2

“2. The former rights of Russia violated by the treacherous attack
of Japan in 1904 shall be restored, viz :

“(a) the southern part of Sakhalin as well as all the islands
adjacent to it shall be returned to the Soviet Union,

1 As background to the Yalta Agreement, see chapter I concerning the Cairo
Declaration and chapter II on the conversations of Vice President Henry A.
Wallace with Generalissimo Chiang Kai-shek in Chungking during June 1944,
in which the latter requested the assistance of the United States in bringing
about an improvement in Sino-Soviet relations. A summary of these conver-
sations, prepared by a member of the Vice Presidential party, is published as
annex 43. At the first formal meeting of the Tehran Conference Marshal Stalin
declared that the Soviet Union would enter the war against Japan “once Ger-
many was finaUy defeated.” The question of making Dairen a “free port under
international guaranty” and Soviet use of the Manchurian railways were dis-
cussed informally during the Tehran Conference.

a The Soviet Union as a result of the insertion of “(The Mongolian People’s
Republic)” later claimed this provision meant independence. The Chinese posi-
tion was based on the Sino-Soviet Treaty of 1924 which had recognized Chinese
sovereignty in Outer Mongolia. For the outcome of the discussion on this point
see p. 117.

113

114

U. S. RELATIONS WITH CHINA

“(b) the commercial port of Dairen shall be internationalized,
the preeminent interests of the Soviet Union in this port being
safeguarded * * 3 and the lease of Port Arthur as a naval base of the
U.S.S.R. restored , 4

“(c) the Chinese-Eastern Railroad and the South-Manchurian
Railroad which provides an outlet to Dairen shall be jointly oper-
ated by the establishment of a joint Soviet-Chinese Company it
being understood that the preeminent interests of the Soviet Union
shall be safeguarded 5 * * 8 and that China shall retain full sovereignty
in Manchuria ;

“3. The Kurile islands shall be handed over to the Soviet Union.

“It is understood, that the agreement concerning Outer-Mongolia
and the ports and railroads referred to above will require concurrence
of Generalissimo Chiang Kai-shek. The President will take measures
in order to obtain this concurrence on advice from Marshal Stalin.

“The Heads of the three Great Powers have agreed that these claims
of the Soviet Union shall be unquestionably fulfilled after Japan has
been defeated.

“For its part the Soviet Union expresses its readiness to conclude
with the National Government of China a pact of friendship and
alliance between the U.S.S.R. and China in order to render assistance
to China with its armed forces for the purpose of liberating China
from the Japanese yoke.”

DISCUSSIONS AT YALTA

From the available evidence, it is clear that the primary motivation
of the Yalta Agreement was military. This aspect is indicated by the
fact that Mr. Stettinius, then Secretary of State, was informed by
President Roosevelt that since this was predominantly a military mat-
ter he (the President) and Mr. Harriman would handle the negotia-

* A controversy was later to arise over this wording, the origin and authorship
of which are still obscure. Mr. Harriman, the American Ambassador at Moscow,

who was a participant in the discussions, subsequently stated that “there is no
reason from the discussions leading up to the Yalta agreements to presume that
the safeguarding of the ‘preeminent interests of the Soviet Union’ should go
beyond Soviet interests in the free transit of exports and imports to and from

[sic] the Soviet Union. . . .” (Italics in the original.)

4 Mr. Harriman has commented on this provision as follows: “I believe Presi-

dent Roosevelt looked upon the lease of Port Arthur for a naval base as an

arrangement similar to privileges which the United States has negotiated with

other countries for the mutual security of two friendly nations.”

8 As regards this provision Mr. Harriman has also stated his conviction that
President Roosevelt had in mind only transit traffic and not any general Russian
interest in Manchuria.

YALTA AGREEMENT AND SINO-SOVIET TREATY OF 194 5 115

tions. Mr. Harriman has subsequently stated that Admiral King
was aware of the projected arrangements and considered them the
most important outcome of the Yalta Conference.

In a conversation between President Roosevelt and Marshal Stalin
on Far Eastern matters during the Yalta Conference, the latter
brought up the subject of the political conditions upon which the
Soviet Union would enter the war against Japan. In the course of
the conversation Marshal Stalin indicated that the political condi-
tions would have to be met because Soviet entry into the Pacific war
“would have to be justified to Russian ‘public opinion.’ ”

In general terms the Russian conditions were conceded. It should
be remembered that at this time the atomic bomb was anything but
an assured reality ; the potentialities of the Japanese Kwantung Army
in Manchuria seemed large; and the price in American lives in the
military campaign up the island ladder to the J apanese home islands
was assuming ghastly proportions. Obviously military necessity
dictated that Russia enter the war against Japan prior to the mount-
ing of Operation Olympic (the assault upon Kyushu) , roughly sched-
uled for November 1, 1945, in order to contain Japanese forces in
Manchuria and prevent their transfer to the Japanese home islands.

There was historical precedent for the specific provisions of the
Yalta Agreement, and the subsequent Sino-Soviet Treaty and related
agreements of 1945 provided adequate legal guarantees. It was, how-
ever, unfortunate that China was not previously consulted. Presi-
dent Roosevelt and Marshal Stalin, however, based this reticence on
the already well-known and growing danger of “leaks” to the Jap-
anese from Chinese sources due to the debilitating and suppurative
effects of the war. Here again military exigency was the governing
consideration. At no point did President Roosevelt consider that he
was compromising vital Chinese interests.

SOVIET VIEWS ON THE AGREEMENT

At the end of May 1945 Harry Hopkins, at the request of President
Truman, visited Moscow. Among other topics he discussed the Far
Eastern situation. During the discussions Marshal Stalin stated that
the reconstruction of China would depend largely on the United
States since Russia would be preoccupied with its own reconstruction ;
that he proposed no alteration over the sovereignty of Manchuria or
any other part of China, either Sinkiang or elsewhere ; that the Soviet
system was not in existence in Mongolia ; that Generalissimo Chiang
Kai-shek was the only Chinese leader qualified to undertake the unifi-
cation of China ; that the Chinese Communist leaders were not as good
or as well qualified to undertake the task ; and that he would welcome

116

U. S. RELATIONS WITH CHINA

Chinese civilian participation in the administrative taking over of
Manchuria.

President Truman in Washington on June 14 repeated the fore-
going to Dr. T. V. Soong, then Premier and Foreign Minister of China,
who expressed his gratification. Dr. Soong pointed out that, even
though the Yalta Agreement referred to the re-establishment of Rus-
sian rights lost in the Russo-Japanese War of 1904, by the Sino-
Soviet Treaty and related agreements of May 31, 1924 and the Agree-
ment of September 20, 1924, with Chang Tso-lin, then war lord of
Manchuria, Russia had renounced special concessions including extra-
territoriality. He said that these points would have to be clarified.

On June 15, 1945, Ambassador Hurley informed Generalissimo
Chiang Kai-shek of the provisions of the Yalta Agreement pursuant
to instructions from the President of June 9, 1945. At the same time
the Ambassador communicated to the Generalissimo Marshal Stalin’s
categorical assurances regarding Chinese sovereignty in Manchuria
and his oral concurrence to the principle of the Open Door in China,
both of which Stalin had given to the President via Harry Hopkins,
who had been on special mission to Moscow in May- June 1945. From
the Generalissimo’s reaction it was apparent that the Russians had
already made the Yalta Agreement known to him.

II. THE SINO-SOVIET TREATY OF FRIENDSHIP
AND ALLIANCE, AUGUST 14, 1945

NEGOTIATION OF THE TREATY

Sino-Soviet negotiations between Dr. T. V. Soong and Marshal
Stalin and Foreign Minister Molotov began in Moscow during the
first week in July 1945. Following their interruption by the Berlin
Conference, negotiations were resumed in August with Dr. Wang
Shi-chieh, the new Chinese Foreign Minister, replacing Dr. Soong as
chief Chinese plenipotentiary. Dr. Soong, however, assisted Dr.
Wang in the August negotiations. At the outset the United States
informed the participants that it expected to be consulted prior to
the signature of any Sino-Soviet agreement, in view of its role
at Yalta. The American position was that the Yalta Agreement
should be complied with — no more, no less.

Difficulties over the interpretation of the provisions of the Yalta
Agreement arose from the very beginning, with the Soviet Union
interpreting the agreement to suit its own purposes. As the Soviet
interpretation of the Yalta Agreement became increasingly apparent,
the United States finally felt compelled to inform both parties that
certain Soviet proposals exceeded the Yalta provisions. At the be-

YALTA AGREEMENT AND SINO-SOVIET TREATY OF 19 45 117

ginning of the negotiations the Soviet Union asked (1) for a con-
trolling Soviet interest in the Chinese Eastern and South Manchurian
Railways; (2) that the boundaries of the Dairen and Port Arthur
leases be those of the Kwantung Peninsula lease prior to the Russo-
Japanese War of 1904; and (3) the recognition of the independence of
Outer Mongolia. The Chinese believed, and the United States agreed,
that these proposals exceeded the provisions of the Yalta Agreement.
Secretary of State Byrnes, with the approval of the President, then
advised the Chinese Government against making any concessions
beyond the terms of the Yalta Agreement. On August 10, 1945, Mr.
Harriman, acting on instructions, informed Dr. Soong as a matter
of record that the United States Government considered that the
proposals which he had already made fulfilled the Yalta Agreement
and that any further concessions would be with the understanding
that they were made by the Chinese Government because of the value
it attached to obtaining Soviet support in other directions. Mr.
Harriman reported that Dr. Soong “thoroughly understood and
accepted the correctness of this position.”

A Treaty of Friendship and Alliance between the Republic of China
and the U.S.S.R. was signed on August 14, 1945. At the same time
notes were exchanged and agreements signed on various individual
and related matters. 6 The Treaty pledged mutual respect for their
respective sovereignties and mutual noninterference in their respective
internal affairs. In the exchange of notes the Soviet Union promised
to give moral support and military aid entirely to the “National Gov-
ernment as the central government of China” and recognized Chinese
sovereignty in Manchuria ; and China agreed to recognize the indepen-
dence of Outer Mongolia if a plebiscite after the defeat of Japan con-
firmed that that was the desire of the Outer Mongolian people. 7 The
agreement on Dairen committed China to declare Dairen a free port
“open to the commerce and shipping of all nations” and provided for
Chinese administration of the port; but it exceeded Yalta by granting
the Soviet Union a lease of half of the port facilities, free of charge.
This agreement has not been put into effect, since Nationalist military
and civil officials have been prevented from functioning in the Kwan-

8 For fuU texts see annexes 51-59.

7 One of the main preoccupations of Dr. Soong during the negotiations was to
secure Soviet recognition of Chinese sovereignty in Outer Mongolia, even though
this had in fact ceased to exist many years before. The Soviet Union had been the
controlling de facto force there since the middle 1920*8 despite the Sino-Soviet
Treaty of 1924. (See footnote 2 to this chapter.) Dr. Soong was apparently
willing to agree to other significant and important concessions in return for Outer
MongoUa and it was with some diflSculty that he was persuaded by Mr. Harriman
to accept substance in place of form.

118

U. S. RELATIONS WITH CHINA

tung Peninsula area because of the attitude of the Russians and the
Chinese Communists. The agreement on Port Arthur provided for
the joint use of the area as a naval base by the two Powers and extended
the boundary of that area farther than the United States expected,
though not to the pre-1904 boundary which the U.S.S.R. would have
preferred. The railway agreement provided for joint ownership and
operation of the Chinese Eastern and South Manchurian Railways.
The Treaty and the agreements regarding Dairen, Port Arthur, and
the railroads were to run for thirty years. 8

ASSURANCES ON THE OPEN DOOR

On July 28 in Berlin Mr. Harriman, in a memorandum to Secretary
Byrnes, had pointed out that since the United States Government had
taken the initiative in inducing China to discuss matters of mutual
interest with the Soviet Union, it was incumbent upon the United
States to obtain recognition of the principle of the Open Door policy
in Manchuria and to make certain that the resulting Sino-Soviet ar-
rangements did not have the effect of giving the Soviet Union special
advantages over American and other foreign commerce with Man-
churia, or of shutting out foreign trade from that part of China. He
therefore recommended that the Soviet Union be requested to give
written assurances of support for the Open Door policy. This sugges-
tion was approved by the Department of State on August 5, 1945.
On August 14, however, Mr. Harriman reported that, according to
Mr. Molotov, Generalissimo Stalin did not believe there was then
any need for a public statement on the Open Door, “especially as he
had given his assurances that the Open-Door Policy would be
maintained.”

The Department on August 22 instructed the Ambassador in Moscow
as follows :

“1. The President desires that you arrange to see Stalin or, if this
proves impracticable, Molotov, as soon as possible and present to him
our views as given below regarding the issuance of a statement affirm-
ing respect for the Open-Door policy in connection with the Soong-
Stalin agreements.

“2. The oral assurances given by Stalin, as you have indicated to
Molotov, are satisfactory to the President. However, you should ex-
plain clearly and forcefully the situation in this country where public
opinion and public reaction to events of concern to the United States

8 About Aug. 10, 1945, Dr. Soong told Mr. Harriman that agreement had been
reached on all outstanding points. Mr. Harriman reported that Dr. Soong was
“very grateful for our support and is convinced that unless we had taken an active
part in the negotiations he would have had to concede to all Stalin’s demands.”

YALTA AGREEMENT AND SINO-SOVIET TREATY OF 1945 119

have great weight and where the public expects and is entitled to be
given as full a knowledge as practicable on foreign affairs which may
affect the interests of this country. It follows, therefore, that the oral
assurances by Stalin do not meet the situation. You may also em-
phasize the deep interest which the American public has in Far
Eastern events and particularly in developments pertaining to China,
including Manchuria. In reply to Molotov’s assertion that the agree-
ments would make it clear that no restriction would be imposed on
foreign commerce, you may state that in so far as the agreements might
fail to give assurances regarding full equality of opportunity and
freedom from any form of discrimination they would fall short of
what we would consider satisfactory. In reply to his point that no
such statement had been foreseen at Yalta, you may say that we do
not consider it reasonable that, simply because at Yalta the desirability
of such assurances was not mentioned, we are therefore not entitled
to request these assurances.

“3. With regard to the manner in which Stalin’s assurances might
be given public form, we suggest and would prefer that the Soviet
and Chinese governments issue a statement, at the time of the publica-
tion of the agreements, affirming adherence to the policy of the Open-
Door, equality of opportunity and non-discrimination in matters re-
lating to the management and operation of the railways and the free
port of Dairen. We do not insist upon the particular language of the
suggested statement as communicated by you to Stalin, but we do feel
that any statement issued should give in clear and unequivocal terms
the assurances we have requested and which Stalin had agreed to give.

“4. We understand that the Chinese are prepared to issue such a
statement and you are authorized to urge on Stalin the desirability of
a similar statement by the Soviet Government.”

Mr. Harriman on August 27 delivered this message to Stalin, who
agreed that the Soviet Union would make a public statement express-
ing support of the Open Door policy in China, including Manchuria,
equal opportunity for trade and commerce, and freedom from dis-
crimination for all free countries. Mr. Harriman assured General-
issimo Stalin that the Chinese Government would make a similar state-
ment after Stalin expressed a preference for separate statements in
lieu of a joint Sino-Soviet one. In the same conversation Stalin said
that he expected the National Government to send Chinese troops to
Manchuria in the near future to take over from the Russians. He
added that the Russian Army had as yet found no Chinese Communist
guerrilla units in Manchuria and that he believed the National Gov-
ernment and the Chinese Communists would reach agreement, since
it was in the interests of both sides to do so.

120

U. S. RELATIONS WITH CHINA

In a conversation on August 31 the Minister-Counselor of the Ameri-
can Embassy discussed the proposed statement with the Chief of the
American Section of the Soviet Foreign Office. The latter seemed
to be under the impression that the United States had in mind a state-
ment concerning China in general. The Minister emphasized, how-
ever, that the United States was concerned with Manchuria since the
statement was intended to relate to the Sino-Soviet arrangements
regarding the Russian position in that area.

On September 6 General Hurley informed the Department that
the suggestions for a statement had been made at a time when the
attitude of the Soviet Union toward the National Government of
China had not been publicly and officially stated. The Ambassador
believed that publication of the Sino-Soviet Treaty and related agree-
ments had altered the situation : “The publication of these documents
has demonstrated conclusively that the Soviet Government supports
the National Government of China and also that the two governments
are in agreement regarding Manchuria.”

In mid-September Mr. Harriman reported a conversation a few
days earlier between the Chinese Ambassador in Moscow and Andrei
Vyshinsky, Soviet Deputy Foreign Minister, in which the latter had
asked for a draft of the proposed statement by the Chinese Govern-
ment. The Chinese Ambassador added that Dr. Soong was most
anxious to have the statement issued but that when he (the Chinese
Ambassador) had informed Chungking of the request from Vyshinsky
he had been informed that the question had been referred to Dr. Wang
Shih-chieh, the Chinese Foreign Minister, who was then in London
attending the First Session of the Council of Foreign Ministers. In
the end, however, the Chinese Government seemingly took the posi-
tion that the Sino-Soviet Treaty constituted a sufficient guarantee,
since it did not again raise the question. The Soviet Union, which
from the beginning had been reluctant, also seems to have allowed the
question to lapse.

CHINESE REACTION TO THE TREATY

On August 16, 1945, Generalissimo Chiang Kai-shek informed
Ambassador Hurley that agreement had been reached with the Soviet
Union and that he was “generally satisfied with the treaty.” In re-
porting this conversation to the Department Ambassador Hurley
added that his reports “showed the Generalissimo has always doubted
the Soviet’s position in regard to relations with the Chinese Com-
munists. Yesterday he thanked me for the basis that I had helped
him to lay for rapprochement with the Soviets. He admitted that
the Sino-Soviet treaty indicates (1.) an intention on the part of the

YALTA AGREEMENT AND SINO-SOVIET TREATY OF 1945 121

Soviets to assist in bringing about unification of the armed forces
in China; (2) an intention to support Chinese efforts to create a
strong, unified and democratic government; and (3) an intention
to support the National Government of China.” In conclusion,
General Hurley said that “Chiang Kai-shek will now have an oppor-
tunity to show realistic and genuine leadership. He will have an
opportunity to show his qualifications for leadership of the Chinese
people in peace as well as in war. I am with the Generalissimo fre-
quently. I insist continuously that the Chinese people must be
responsible for their own policies, select their own leadership, and
make their own decisions.”

In a conversation of August 21 with Ambassador Hurley the
Chinese Foreign Minister, Dr. Wang Shih-chieh, who had just returned
to Chungking, “expressed himself as being satisfied with the results
and said that proceedings would commence at once for the approval of
the treaty and the notes exchanged between the Soviet and Chinese
Governments.”

On August 29, Madame Chiang Kai-shek, who was then in the
United States, called on the President. She complimented him on
the results of the Sino-Soviet conversations and expressed apprecia-
tion to the United States Government for the assistance which it had
given to the Chinese plenipotentiaries in working out these agree-
ments. The President said that that had been one of his principal
objectives in going to Berlin and that he felt strongly that China
should be supported in working out the arrangements which had been
initiated by President Roosevelt.

Despite criticism of the Sino-Soviet arrangements of August 14,
1945, and as indicative of the* value which the Chinese Government
attached to them, Dr. Wang Shih-chieh as late as September 14, 1947,
in a conversation with General Marshall, then Secretary of State, con-
cerning the question of the veto power as applied to the J apanese peace
treaty, expressed his opposition to the elimination of the veto power
because of his fears that the Soviet Union “would interpret this, for
its own convenience, as virtually cancelling the Sino-Soviet Treaty.”
The Foreign Minister was concerned at the reaction this would have
on the situation in China.

Editorial comment in both Nationalist and Chinese Communist
territory expressed approval of the Sino-Soviet Treaty and related
agreements at the time they were made public.

UNITED STATES REACTION TO THE TREATY

At the time that the Sino-Soviet Treaty and related agreements
were made public the United States supported the arrangements. In

122

U. S. RELATIONS WITH CHINA

a statement issued on August 27, 1945, Secretary Byrnes said that he
believed that the treaty and accompanying agreements constituted an
‘‘important step forward in the relations between China and the
Soviet Union.” He added that the United States welcomed this
development “as a practical example of the continuing unity and
mutual helpfulness which should characterize the acts of members of
the United Nations in peace as well as in war.”

Nevertheless early in September the American Embassy in Moscow
registered a note of caution regarding the significance of the Sino-
Soviet arrangements and their relation to the historic course of Rus-
sian imperialism. In a telegram of September 10, 1945, to the Depart-
ment the American Embassy in Moscow summarized its views with
respect to Russian intentions in the Far East as follows:

“1. The pact was not necessary for the achievement of any im-
mediate objectives now being obtained by the Red Army. Regardless
of the existence of the pact these objectives, including the military
occupation of Manchuria and the Liaotung Peninsula, could and would
have been achieved.

“2. The effect of the agreements concerning Manchuria should cause
no illusion. Russian willingness to withdraw its forces and to admit
Chinese to civil affairs control reflects mature statesmanship on the
part of Stalin and his Moscow advisers. The initial Russian position
as an occupying power, together with greater proximity and the far
greater discipline of Russian power, should make it easy for the Rus-
sians to remain masters of the situation even after Russian troops have
withdrawn. It was tacitly understood by both parties to the Moscow
negotiations that Chinese officials in Manchuria would for the most
part have to be amenable to Russian influence. Chinese Communist
forces, according to recent broadcasts, have been ordered to enter Man-
churia and in cooperation with the Russian army, to accept the Japan-
ese surrender. Logically, the Russian authorities and their sym-
pathizers will encourage the use of these Communist forces in the ad-
ministration of Manchuria after the evacuation of the Russian Army.
It should also be realized that local Russian authorities, in matters
concerning the internal affairs of neighboring countries, do not always
exercise the same restraint as does the Kremlin.

“3. Nothing in the internal regime of Outer Mongolia will be
changed with its independence. The only effect will be its elimination
as a possible source of future Chinese irredentism and an increase in
its usefulness as an instrument for future Russian expansion.

“4. Russian assurances of support to the National Government and
of non-interference in internal Chinese affairs reaffirms what has
existed for some time. It is probable that any Kremlin control over

YALTA AGREEMENT AND SINO-SOVIET TREATY OF 1045 123

the Chinese Communists has been through the Party apparatus and
not through government channels. It seems likely that this situation
will obtain in the future— namely, control through the Party. The
bargaining position of the Chinese Communists on the basis of implied
military support is undoubtedly weakened by the Russian assurances.
On the other hand, these assurances (a) remove any excuse for a Sino-
American crusade against the Chinese Communists as a spearhead
of Russian penetration of China, (b) to a considerable extent dispel
general suspicion of Russian intentions in China and thus disarm
average critics of the Russian role there, and (c) place Russian policy
in China on a high and disinterested moral plane. In the meantime,
the Russian Communist Party can continue to support the Chinese
Communist program of “democratization,” and to exert political pres-
sure on the National Government to compromise.

“5. There should be no misunderstanding of Russian intentions
toward Japan and Korea simply because of superficial Russian modera-
tion on Manchuria. In the Russian zone of Korea Communist-trained
Korean elements are already being given responsibility for civil affairs.
It is a natural tendency or even a deliberately conceived policy for the
Russians to seek maximum internal influence in near-by areas through
use of persons trained to accept their discipline and to share their
ideology.”

SOVIET ATTITUDE TOWARD MANCHURIAN INDUSTRIES

About the same time the United States became disturbed over de-
velopments in Manchuria. Upon the defeat of Japan, the Soviet
Union accepted the surrender of Japanese forces in Manchuria, as well
as in southern Sakhalin and the Kurile Islands. While its troops were
in Manchuria, the Soviet Government removed considerable Japanese-
owned industries and equipment from Manchuria, on the ground that
such property was “war booty” because it had been used to support
the Japanese war effort. The United States protested these removals
to the Soviet Union on a number of occasions, objecting not only to
the inclusion of these industries in the concept of war booty, but also
to the unilateral action of the Soviet Government in removing Japa-
nese industries from Manchuria. The United States took the position
that the disposition of Japanese property in Manchuria should be
decided by an Inter- Allied Reparations Commission for Japan on the
same basis as for Japanese external assets located in other countries. 851

When the Soviet Union proposed to China early in 1946 that control
of Japanese industrial enterprises in Manchuria be shared by agree-
ment between the two states, the United States informed both China

See annex 60.

124

U. S. RELATIONS WITH CHINA

and the Soviet Union that the establishment of such exclusive bilateral
control would be contrary to the principle of the Open Door and would
constitute clear discrimination against Americans who might wish to
participate in the development of Manchurian industry.

DISCUSSIONS AT THE MOSCOW CONFERENCE, 1945

At the Moscow Conference of the Foreign Ministers of the United
Kingdom, the United States and the Soviet Union, in December 1945,
the United States proposed that the question of transfer of control of
Manchuria to the Chinese National Government be included on the
agenda of the Conference. Mr. Molotov, the Soviet Foreign Min-
ister, would not agree to the inclusion of this question. He explained
that it was not necessary inasmuch as the Soviet Union had a special
agreement with China concerning Manchuria and that there were no
differences between the two countries on the subject. He said that
the evacuation of Russian troops from South Manchuria was com-
pleted and that the evacuation from North Manchuria would have
been completed if the Chinese Government had not requested that it
be delayed for a month. Mr. Molotov insisted, however, on discussing
the presence of United States troops in North China. Secretary
Byrnes agreed to do so in connection with the disarming, of Japanese
forces in North China.

During the several meetings at which this question was discussed,
Mr. Byrnes made the point that American forces in China were merely
assisting in the demobilization of J apanese troops and their deporta-
tion from the area. He indicated that this task had been assumed
from a feeling of responsibility for the maintenance of peace in North
China which was one of the motives prompting the dispatch of Gen-
eral Marshall on special mission. Mr. Molotov stated that the evacua-
tion of Russian troops from Manchuria would be completed by
February 1, 1946, and that the Chinese simply wanted to get others to
do their work. He added that it was intolerable that there were still
Japanese forces which had not yet been disarmed. He called attention
to a Soviet memorandum of December 21 which objected to “other
foreign troops” assisting in the disarming of Japanese forces in China
and demanded that the United States agree with the Soviet Union on
a date not later than the middle of January 1946 for simultaneous
evacuation of their respective forces from China. In this memoran-
dum the Soviet Government declared that it adhered to a policy of
non-interference in the internal affairs of China and indicated that
“other states” should do likewise. Mr. Byrnes reiterated that the
United States was merely carrying out its responsibilities and denied
that the United States was interfering in Chinese internal affairs. He

YALTA AGREEMENT AND SINO-SOVIET TREATY OF 1945 125

emphasized that the United States desired a unified and united China,
and asked for Soviet cooperation to that end. In a subsequent con-
versation with Secretary Byrnes, Generalissimo Stalin also objected
to the use of American troops in the demobilization of Japanese
forces in China.

The communique issued at the close of the Moscow Conference con-
tained the following statement regarding China :

“The three Foreign Secretaries exchanged views with regard to the
situation in China. They were in agreement as to the need for a
unified and democratic China under the National Government, for
broad participation by democratic elements in all branches of the
National Government, and for a cessation of civil strife. They reaf-
firmed their adherence to the policy of noninterference in the internal
affairs of China.

“Mr. Molotov and Mr. Byrnes had several conversations concerning
Soviet and American armed forces in China.

“Mr. Molotov stated that the Soviet forces had disarmed and de-
ported Japanese troops in Manchuria but that withdrawal of Soviet
forces had been postponed until February 1st at the request of the
Chinese Government.

“Mr. Byrnes pointed out that American forces were in north
China at the request of the Chinese Government, and referred also
to the primary responsibility of the United States in the implementa-
tion of the Terms of Surrender with respect to the disarming and
deportation of Japanese troops. He stated that American forces
would be withdrawn just as soon as this responsibility was discharged
or the Chinese Government was in a position to discharge the respon-
sibility without the assistance of American forces.

“The two Foreign Secretaries were in complete accord as to the
desirability of withdrawal of Soviet and American forces from China
at the earliest practicable moment consistent with the discharge of
their obligations and responsibilities.”

AMERICAN PROTESTS ON DAIREN

Because Dairen was not opened to commercial vessels in the months
following the surrender of Japan, the United States on two occasions
during 1947 protested to the Soviet Government on the grounds that
American commercial activity was hindered by the* port’s not being
opened to traffic. The Soviet Union replied by referring to the pro-
vision of the agreement regarding Dairen of August 14, 1945, which
stated that, in case of war with Japan, Dairen was to come under the
control of the military regime authorized for the Port Arthur naval
base area. The Soviet Union added that in as much as the war with

126

U. S. RELATIONS WITH CHINA

Japan had not been terminated, there being no peace treaty, Dairen
came under the administration of the Port Arthur naval base. The
Soviet Government also stated that it “sees no basis for a change of the
regime” under which Dairen remained closed to commercial intercourse
with other countries. Thus the United States protests were of no
avail.

CONCLUSION

At the time that the Sino-Soviet Treaty and related agreements
were concluded they were generally considered in the most favorable
light. It was thought that the arrangements would provide a firm
basis for peaceful and harmonious relations between the two countries.
The Yalta Agreement had, of course, been dictated by military neces-
sity and the vital importance of ensuring the entry of the Soviet Union
into the Far Eastern war before the Allied invasion of Japan which
had been set for the autumn of 1945. Although the unexpectedly
early collapse of J apanese resistance later made some of the provisions
of the Yalta Agreement seem unnecessary, the Agreement and the sub-
sequent Sino-Soviet Treaty in fact imposed legal limitations on the
action which Russia would, in any case, have been in a position to take.
At Yalta, Marshal Stalin not only agreed to declare war on Japan
within two or three months after V-E Day but limited his “price”
with reference to Manchuria substantially to the position which
Russia had occupied there prior to 1904. In the Sino-Soviet Treaty,
furthermore, the Soviets agreed to give the National Government of
China moral and material support and moreover formalized their
assurances of noninterference in Chinese internal affairs. In view
of world developments since the conclusion of hostilities against
Japan, especially in recent years, there is no evidence to suggest that
the absence of such arrangements would have restrained the Soviet
Union from pursuing Russia’s long-range traditional objectives.
Even though the Soviet Union has not seen fit to honor its signed
agreements in practice, their existence has had, as the National
Government itself has admitted, moral and legal advantage for that
Government.

CHAPTER V

The Mission of General George C. Marshall

1945 - 1947 1

I. THE ECONOMIC, MILITARY AND POLITICAL

SETTING

INTRODUCTION

After the successful termination of the war against Japan, and at
the time General Hurley left Chungking, there were several elements
in the situation which plausibly argued that prospects for peace and
reconstruction in China were reasonably good. The negotiations be-
tween the National Government and the Chinese Communists had
reached a stage of agreement on general principles and General
Hurley himself felt that agreement on details and implementation was
by no means impossible. Both participants in the negotiations still
professed their desire and intention to seek a political settlement and
there could be little doubt that the overwhelming popular demand was
for peace.

Perhaps the most important factor immediately after V-J Day was
the economic situation, which, despite the brutal and devastating
effects of eight years of war, was surprisingly good and contained
many elements of hope.

GENERAL ECONOMIC SITUATION IMMEDIATELY AFTER V-J DAY

In China proper, although there had been serious wartime dis-
ruption in certain sectors of the economy, the productive potential of
agriculture, mining, and industry in most of the area taken from the
Japanese was not substantially different from that of 1937. The
expulsion of the Japanese from Manchuria and Formosa promised
to increase several-fold the national industrial plant and to contribute
to the achievement of national self-sufficiency in food. Such economic
problems as could be foreseen in the late summer of 1945 related less

1 The bulk of the material for this chapter has been drawn from the files of
General Marshall’s Mission.

127

128

U. S. RELATIONS WITH CHINA

to the reconstruction of productive equipment than to the organization
of production and distribution through facilities already available.

Except in those parts of Central and South China which had been
subjected to active military operations in 1944-1945, production of
foodstuffs was at or near prewar levels, but agricultural production
had shifted significantly away from cash crops, such as cotton, to
food crops for local consumption. Heavy losses were inflicted on
inland and coastal shipping during the war years, and the railroad
from Peiping to Canton and others in South China had suffered
serious damage, but the efficiency of the greater portion of railroad
facilities was only moderately impaired. The number of motor
vehicles in operation had actually increased somewhat during the war.
Coal production had increased by about 25 percent under Japanese
management. On the other hand, electric power supply in China
proper decreased significantly because of the loss of over one-quarter
of prewar generating capacity.

Wartime changes in industrial capacity were not important, except
in the iron and cotton textile industries. Despite destruction of facil-
ities at Hankow by retreating Chinese forces, total pig iron capacity
was increased by about 50 percent over prewar levels during the occu-
pation. Cotton spinning capacity, however, fell sharply. A full year
after Japanese surrender little more than half of the prewar total of
nearly 5 million spindles was in operation. An additional 1.4 million
spindles were reparable but w T ere not expected to be brought into pro-
duction for another year. The principal economic effects of eight
years of war and invasion appear to have been not so much the
destruction of wealth or the diversion of production into new channels
as the suspension of the process of industrialization and the disrup-
tion of the new national monetary system.

In regaining Manchuria, China would inherit the extensive
industrial complex built by the Japanese and a rich agricultural
area capable of producing a substantial export surplus. With
about one-fourth of the total area and one-ninth the population, Man-
churia had come to possess an industry over four times as large as that
of China proper, and an electric generating capacity nearly three
times as large. The density of Manchuria’s rail net was over four
times as great as that of China proper.

China’s economic gains in resuming administration over For-
mosa after a lapse of 50 years were smaller than, but similar in
nature to those in prospect on V-J Day in Manchuria. Formosa also
had traditionally a large export surplus of agricultural products.
Japanese industrial achievements were less impressive in Formosa

THE MISSION OF GENERAL GEORGE C. MARSHALL 129

than in Manchuria, but a wartime boom had given Formosa a sub-
stantial productive capacity in aluminum, petroleum products, and
electric power, in addition to its older capacity in sugar refining and
other food exporting industries. Both agriculture and industry in
Formosa, however, had suffered severely during the war. Irrigation
works and crops themselves had suffered heavy typhoon damage in
1944 and 1945, and food production had declined for lack of adequate
fertilizer. Industry, the electric power distribution system, and
harbor facilities were crippled by Allied bombing in the last months
of the war.

CHINA’S FINANCIAL POSITION

China’s foreign exchange holdings at the conclusion of the war with
Japan were by far the largest in the history of that country. The
principal fiscal asset of the Chinese Government at the end of the war
against Japan was its unprecedentedly large reserves of gold and
U. S. dollar exchange, which were estimated to total over 900 million
United States dollars on December 31, 1945. The accumulation of
these reserves had been made possible by virtue of the nondisburse-
ment of a substantial portion of the 500 million dollar American
credit authorized in 1942, and by United States Government pay-
ments during the war of approximately 400 million dollars to the
Chinese Government against advances of Chinese currency and
Chinese Government expenditures on behalf of the 'United States
Army. In addition to these reserves of the Chinese Government,
private Chinese held very substantial foreign exchange assets, most
of which could be used to finance imports into China. Although com-
plete data regarding private Chinese holdings of gold, silver and
other foreign exchange assets is not available, it has been estimated
conservatively that such holdings on V— J Day amounted to at least
several hundred million United States dollars.

Optimism based upon China’s very favorable foreign exchange
position was tempered by realization of the magnitude of the recon-
struction task in some parts of the economy, as well as the necessity
of immediate large-scale imports of food and industrial raw ma-
terial. Pending the re-establishment of normal internal trade, in-
dustrial production could be maintained and consumer welfare pro-
tected only by the purchase abroad of relatively large quantities of
such essential commodities as cotton and grain. Reconstruction was
most urgently needed in the field of transportation. Substantial
assistance in obtaining the abnormal volume of imports needed in
connection with postwar reconstruction and rehabilitation was an-

TJ. S. RELATIONS WITH CHINA

130

ticipated from Unrra. The ultimate soundness of the international
financial position of the Chinese Government depended, however, on
the speed with which export industries and remittances from Chinese
overseas regained their prewar levels.

The Chinese Government also faced financial problems of a large y
domestic nature. Inflationary methods of finance had been resorted
to during the war as the only means of maintaining resistance against
the Japanese in the face of the loss of the richest part of the national
territory, the disruption of normal trade, and the disorganization of
public administration. Bringing the wartime inflation to a halt was
essential to post-war economic recovery, but such action depended
upon an expansion of revenues and a reduction in military expendi-
tures. After the war, the Government regained control of the great-
est revenue producing areas of China proper, and, of course, looked
forward to the Manchurian and Formosan economies as rich sources
of revenue. The extensive industrial properties taken over from
the Japanese promised to provide the Government with a new and
non-inflationary source of funds. No accurate appraisal of the value
of these properties is available but, in addition to the major Govern-
ment properties acquired in Manchuria and Formosa, the Chinese
Government fell heir to Japanese cotton mills in China proper with
a total of almost two million spindles, representing nearly half of
the nation’s cotton spinning industry, as well as various other
Japanese-owned industrial facilities.

In prospect, the Government’s financial position on V-J Day was
reasonably bright. The inter-related problems that it faced both do-
mestically and internationally were sizable, but at the same time it
possessed assets which appeared capable of making a large contribution

to their solution.

UNFAVORABLE ELEMENTS

Despite the favorable elements in the negotiations and in the eco-
nomic situation there was reason during the fall of 1945 for grave con-
cern that the prospects of peace and stability in China were.in serious
jeopardy. The Chinese Communists had refused to recognize orders
issued by the National Government concerning acceptance of surrender
of Japanese and Chinese puppet troops and were proceeding, insofar
as their capacity permitted, to accept such surrender, to seize enemy
materiel, and to occupy enemy territory. The result was a series of
increasingly frequent and widespread clashes between the armed forces
of the Government and of the Chinese Communist Party. These
clashes spread to other areas as well, to such an extent that competent
observers had grave doubts as to the possibility of a peaceful settlement.

THE MISSION OF GENERAL GEORGE C. MARSHALL 131

GENERAL WEDEMEYER’S REPORTS

On November 14, 1945, Lieutenant General Albert C. Wedemeyer,
Commanding General, China Theater, reported to Washington that
the National Government was completely unprepared for occupation
of Manchuria in the face of Communist opposition. He also re-
ported his recommendation to the Generalissimo that the Chinese
should adopt the immediate objective of consolidating the areas south
of the great wall and north of the Yangtze and of securing the over-
land line of communications in that area prior to entry into
Manchuria.

Again on November 20, 1945, he reported as follows :

“I have recommended to the Generalissimo that he should concen-
trate his efforts upon establishing control in north China and upon the
prompt execution of political and official reforms designed to remove
the practice of corruption by officials and to eliminate prohibitive
taxes.”

General Wedemeyer also recommended the utilization of foreign
executives and technicians, at least during the transition period. He
then added :

“Chinese Communist guerrillas and saboteurs can and probably
will, if present activities are a reliable indication, restrict and harass
the movements of National Government forces to such an extent that
the result will be a costly and extended campaign. . . . Logistical
support for National Governmental forces and measures for their
security in the heart of Manchuria have not been fully appreciated
by the Generalissimo or his Chinese staff. These facts plus the lack
of appropriate forces and transport have caused me to advise the
Generalissimo that he should concentrate his efforts on the recovery
of north China and the consolidation of his military and political
position there prior to any attempt to occupy Manchuria. I re-
ceived the impression that he agreed with this concept.”

Among General Wedemeyer’s conclusions at that time were the
following :

“1. The Generalissimo will be able to stabilize the situation in south
China provided he accepts the assistance of foreign administrators
and technicians and engages in political, economic and social reforms
through honest, competent civilian officials.

“2. He will be unable to stabilize the situation in north China for
months or perhaps even years unless a satisfactory settlement with the
Chinese Communists is achieved and followed up realistically by the
kind of action suggested in paragraph 1.

132

U. S. RELATIONS WITH CHINA

“3. He will be unable to occupy Manchuria for many years unless
satisfactory agreements are reached with Russia and the Chinese
Communists.

“4. Russia is in effect creating favorable conditions for the realiza-
tion of Chinese Communist and possibly their own plans in north
China and Manchuria. These activities are violations of the recent
Sino-Russian Treaty and related agreements.

“5. It appears remote that a satisfactory understanding will be
reached between Chinese Communists and the National Government.”

The final recommendation of General Wedemeyer was the establish-
ment by the United States, Great Britain and Russia of a trusteeship
over Manchuria until such time as the National Government had be-
come sufficiently strong and stabilized to assume responsibility of full
control over the area. One of the principal reasons which led Gen-
eral Wedemeyer to the above conclusions was his conviction that
National Government abuses and malpractices had already created
serious discontent among the local population in areas taken over from
the Japanese, and even this soon after the end of the war against Japan
had seriously alienated a considerable amount of sympathy for the
National Government.

It is against this checkered background that the mission of General
Marshall should be considered.

GENERAL MARSHALL’S APPOINTMENT AND INSTRUCTIONS

When President Truman announced on November 27, 1945, his
acceptance of Ambassador Hurley’s resignation, he announced also the
appointment of General of the Army George C. Marshall as his Spe-
cial Representative in China, with the personal rank of Ambassador.
In the instructions which he addressed to General Marshall on De-
cember 15, la the President asked the General to bring to bear the in-
fluence of the United States to the end that the “unification of China
by peaceful, democratic methods” might be achieved as soon as pos-
sible and concurrently to endeavor to effect a cessation of hostilities,
particularly in North China. To assist in the accomplishment of this
mission General Marshall was authorized to speak to Generalissimo
Chiang Kai-shek and other Chinese leaders “with the utmost frank-
ness” and to state that “a China disunited and torn by civil strife”
was not a proper place for American economic assistance in the form
of credits or technical assistance nor for American military aid.

lR See annexes 61, 62.

THE MISSION OF GENERAL GEORGE C. MARSHALL 133

THE PRESIDENT’S POLICY STATEMENT OF DECEMBER 15, 1945

A portion of General Marshall’s instructions, in the form of a
Presidential statement on United States policy toward China, was
released on December 15 for publication the following day. lb Stating
that a “strong, united, and democratic China” was of the utmost
importance to world peace, the President declared that it was “in the
most vital interest of the United States and all the United Nations
that the people of China overlook no opportunity to adjust their in-
ternal differences promptly by methods of peaceful negotiation.” He
called for a cessation of hostilities in China, but pledged that there
would be no American military intervention to influence the Chinese
civil fighting, explaining the presence of American troops in North
China in terms of the necessity for disarming and evacuating sur-
rendered Japanese troops still on Chinese soil.

President Truman further urged the convening in China of a na-
tional conference of the major Chinese political elements to develop
a solution to the problems of China which would not only end internal
strife but would also bring about unification of the country on terms
which would give all major political elements fair and effective repre-
sentation in the Chinese Government. This obviously meant modifi-
cation of the Kuomintang’s system of “political tutelage” and the
broadening of the base of government. The President pointed out
that the detailed steps necessary to the achievement of political unity
in China must be worked out by the Chinese themselves and disowned
any intention of intervening in these matters. He declared, however,
that China and all parties and groups in China had a clear responsi-
bility to the other United Nations to eliminate armed civil conflict,
which was a threat to world stability and peace.

The President concluded by promising American assistance, as
China moved toward peace and unity, in the rehabilitation of the
country, in the improvement of the industrial and agrarian economy,
and in the establishment of a military organization “capable of dis-
charging China’s national and international responsibilities for the
maintenance of peace and order.”

THE BEGINNING OF THE MARSHALL MISSION

In the light of these instructions General Marshall undertook the
execution of his mission immediately upon his arrival in Chungking.
The complex problems in China fell largely under three heads —
political, military and economic— but they frequently became so en-
tangled that discussion of them cannot be separated. This was par-
ticularly true of the political and military problems, for the two

3b For full text see annex 62.

134

U. S. RELATIONS WITH CHINA

principal Chinese parties to the negotiations in which General Mar-
shall took part, the National Government and the Chinese Communist
Party, frequently made military action or inaction a sine qua non for
a political concession, or vice versa.

The President’s Special Representative acted both as an intermedi-
ary between Generalissimo Chiang Kai-shek and the representatives
of the Chinese Communist Party and as an adviser to or member of
certain bodies, or committees, which were established in the effort to
reach agreement on China’s problems. He also exercised initiative in
giving each side impartially and confidentially the benefit of his
analysis of the situation as it developed, and in drafting various state-
ments and agreements which he thought might move the negotiations
forward.

Throughout his mission General Marshall kept the President and
the Secretary of State fully informed of the progress of the negotia-
tions, of his actions in connection with these negotiations and of his
estimate of the situation in China. His actions and decisions had the
unqualified support and approval of the President and the Secretary
of State.

The negotiations themselves were most difficult and most complex.
As it turned out General Marshall was often unable to bring the two
sides to complete agreement on a set of terms before the situation
changed, frequently as a result of what he considered bad faith on one
side or the other, and a new set of proposals based on the new situa-
tion became the basis of discussion. This chapter largely forms a
narrative, therefore, of the constantly shifting situations, proposals,
counterproposals, and discussions, starting with the political and
military situation which General Marshall found in China upon his
arrival. Economic matters concerning Sino-American relations dur-
ing the period of the Marshall mission, however, have been separated
from the rest of this narrative insofar as possible and grouped together
toward the end of the chapter.

RECAPITULATION OF CHINESE POLITICAL BACKGROUND FOR THE
MISSION

Dr. Sun Yat-sen’s program for China had envisaged a period of
“political tutelage” under the Kuomintang as the necessary prepara-
tion for the establishment of constitutional government in China.
The Kuomintang had thus been committed to end its one-party con-
trol of government and to convene a National Assembly for the pur-
pose of adopting a constitution and forming a new government, and
a draft constitution had actually been promulgated by the National
Government on May 5, 1936. A National Assembly had been sched-

THE MISSION OF GENERAL GEORGE C. MARSHALL

135

uled to be convened in November 1937 to adopt the constitution, but
the outbreak of hostilities with J apan had resulted in a postponement
of this Assembly. Preparations for the convening of the Assembly
had continued, however, during the war with Japan and at a meet-
ing of the Kuomintang Central Executive Committee in September
1943, Generalissimo Chiang Kai-shek had indicated that with the es-
tablishment of representative institutions the Kuomintang would lose
all special privileges and other parties would be equal to it in rights
and freedoms. The Generalissimo had also stated on September 13,
1943:

“. . . I am of the opinion that first of all we should clearly recog-
nize that the Chinese Communist problem is a purely political prob-
lem and should be solved by political means.”

The Central Executive Committee had accordingly passed a resolution
providing that within one year after the conclusion of the war the
National Government was to convene a National Assembly to adopt
and promulgate a constitution. Shortly thereafter, the Generalis-
simo appointed a committee of 53, including 2 Communist representa-
tives, to lay the groundwork for constitutional government. In May
1944 a Communist representative held preliminary conversations at
Sian with two high-ranking National Government representatives and
later proceeded to Chungking where further discussions were held for
a settlement of the differences between the Government and the Chinese
Communists.

In subsequent discussions between the National Government and
the Chinese Communist Party at Chungking shortly after V-J Day
agreement was reached regarding steps to be taken toward the es-
tablishment of a constitutional government. The exact formula was
set forth in the Text of the Summary of National Government-Com-
munist Conversations issued at Chungking on October 11, 1945, and
referred to above. 2

This text provided that questions which were not settled during
these conversations should be referred to a “Political Consultative
Conference.”

It will be noted that President Truman’s statement of December 15,
1945, was entirely consonant with the publicly stated pledges of the
Chinese Government and the Generalissimo regarding a peaceful set-
tlement of the Communist problem and with the agreement reached
between that Government and the Chinese Communist Party in Octo-
ber 1945 providing for the convening of the “Political Consultative
Conference” to discuss measures looking toward the establishment of

2 See chapter III.

136

U. S. RELATIONS WITH CHINA

a constitutional Government. A provisional list of the delegates to
this Conference had been published at Chungking on November 27.
On December 31, 1945, the National Government announced that the
Generalissimo had decided that the Political Consultative Conference
would convene at Chungking on January 10, 1946.

II. THE AGREEMENTS OF JANUARY AND
FEBRUARY 1946

THE CEASE-FIRE AGREEMENT OF JANUARY 10, 1946

Prior to the convening of the Conference, the National Government
presented to the Chinese Communist Party a proposal for the cessa-
tion of hostilities, in which it suggested the formation of a committee
composed of a representative of the National Government and a rep-
resentative of the Chinese Communist Party, with General Marshall
as Chairman, to discuss the question of the cessation of hostilities and
related matters. The Chinese Communist Party having agreed to
the formation of this committee, General Chang Chun was appointed
as the National Government representative and General Chou En-lai
as the Chinese Communist Party representative. This Committee,
called the Committee of Three, held its first formal meeting on J anuary
7, 1946.

During the early conversations of General Marshall with National
Government leaders and Chinese Communist Party representatives in
Chungking the basic distrust between the two groups was apparent.
The National Government was convinced that the U.S.S.B. had ob-
structed the efforts of the National Government to assume control
over Manchuria in spite of the provisions of the Sino-Soviet Treaty
of August 1945 and that the Chinese Communists were tools of the
U.S.S.B. The Chinese Communist Party was suspicious of the Kuo-
mintang and believed that its aim was the destruction of the Chinese
Communist Party. The Government leaders were unwilling to per-
mit Communist participation in the Government until the Communists
had given up their armed forces, while the Communists believed that
to do so without guarantees of their legal political status would end
in their destruction.

In the light of the statement of American policy toward China, which
pointed out that the United States, the United Kingdom, and the
U.S.S.B. were committed by various agreements with the Chinese
Government to the return of all China, including Manchuria, to
Chinese control, General Marshall envisaged a solution which would
be in accord with these agreements and which would result in bringing
this area under the control of a unified China.

THE MISSION OF GENERAL GEORGE C. MARSHALL 137

With that end in view, he had informed General Chou En-lai on
January 4 that the United States Government was committed to the
movement of National Government troops to Manchuria. General
Chou expressed his agreement to the inclusion of an exception in the
cessation of hostilities agreement to permit the movement of National
Government troops into Manchuria and added that the movement of
such troops conformed to American policy and to the Sino-Soviet
Treaty of August 1945.

The Committee of Three reached an agreement on January 10 for
the cessation of hostilities. In accordance with this agreement, both
the Generalissimo and Mr. Mao Tse-tung, Chairman of the Chinese
Communist Party, issued orders to their respective armed forces to
cease hostilities and halt all movements of troops, with certain ex-
ceptions which were included in stipulations regarding the cease-fire
order and were made public in a press release. 3 These stipulations
provided for the movement of National Government troops into and
within Manchuria for the purpose of restoring Chinese sovereignty
and for the movement of National Government troops south of the
Yangtze River in connection with the Government military reorgani-
zation plan. The cease-fire order was to be effective at midnight on
January 13, thus allowing time for the transmission of the order to
commanders in the field. The order further provided for the cessation
of destruction of and interference with all lines of communication
and for the removal of obstructions placed against or interfering
with such lines.

The agreement also provided for the establishment of an Executive
Headquarters at Peiping to carry out the agreement for the cessation
of hostilities. 4 This headquarters, which began its official functions
on January 14, was to consist of three commissioners, one representing
the National Government, one representing the Chinese Communist
Party, and one representing the United States. The National Gov-
ernment and the Chinese Communist Party were to have equal repre-
sentation in the operations section of the Executive Headquarters and
in the teams to be sent to the field to carry out on the spot the pro-
visions of the cease-fire order and the directives of the headquarters.
The necessary instructions and orders agreed upon unanimously by

3 See annex 63.

4 See annex 71 for full text of the document establishing the Executive Head-
quarters and for a memorandum on operations of the Executive Headquarters.
American military and naval personnel in China were also charged with certain
functions concerning repatriation of Japanese, a task which was fulfilled with
the highest degree of effectiveness so that by the end of 1946 a total of almost
3,000,000 Japanese military personnel and civilians had been repatriated to
Japan. A memorandum on this operation is also included in annex 71.

138

U. S. RELATIONS WITH CHINA

the three commissioners were to be issued in the name of the Presi-
dent of the Republic of China. It was made clear that American
participation in the headquarters was solely for the purpose of
assisting the Chinese members in the implementation of the cease-fire
order.

THE POLITICAL CONSULTATIVE CONFERENCE

The agreement for the cessation of hostilities enabled the Political
Consultative Conference (hereafter called the PCC) to convene in an
atmosphere of peace. The PCC, which was in session at Chungking
from January 10 to 31, 1946, was composed of representatives of the
Kuomintang, the Chinese Communist Party, the Democratic League,
and the Youth Party and of non-party delegates. It met as a con-
sultative body without any legal authority to enforce its decisions.
Morally, all groups represented were obligated to accept the decisions,
but legally the PCC resolutions were subject to approval by the central
committees or governing bodies of the various parties represented.

At the opening session of the PCC, Generalissimo Chiang Kai-shek
announced the decision of the Government to grant immediately cer-
tain fundamental democratic rights. They included freedom of
speech, assembly, and association; equal legal status for all political
parties ; the holding of popular elections ; and the release of political
prisoners. On January 31, the PCC held its final session and released
to the press the text of the resolutions agreed upon. 5 These resolutions
were divided into five main headings as follows: (1) Government
Organization; (2) Program for Peaceful National Reconstruction;
(3) Military Problems; (4) Agreement on the National Assembly;
and (5) the 1936 Draft Constitution.

In his address to the closing session of the PCC, the Generalissimo
made the following statements regarding the PCC resolutions : 6
“I wish to declare first on behalf of the Government that they will
be fully respected and carried out as soon as the prescribed procedures
have been completed. I pledge at the same time that I will uphold this
program faithfully and will also see to it that all the military and
civil subordinates follow it strictly. From now on, I will, whether
in the Government or out of it, faithfully and resolutely observe, as
a citizen should, all the decisions of this Conference.”

In contrast to the Generalissimo’s statements, however, there were
indications of strong opposition to the PCC resolutions among power-
ful reactionary groups in the Kuomintang. Minority party reaction
to the decisions of the PCC was shown in the issuance of categorical

6 See annexes 64, 65, 66, 67, 68.

0 As reported by the Kuomintang Ministry of Information.

THE MISSION OF GENERAL GEORGE C. MARSHALL 139

statements by the Chinese Communist Party, the Democratic League,
and the Youth Party of their intention to carry out the PCC
resolutions.

General Marshall did not act as a mediator or participate in the
discussions of the Political Consultative Conference. In accordance
with the Generalissimo’s request, he did, however, have prepared a brief
draft of an act for possible promulgation by the National Government
which included a bill of rights, a provision for drawing up a constitu-
tion to be submitted to the National Assembly in May and a provision
for the establishment of an interim coalition government reposing in
the Generalissimo power of control as the President of all China prior
to the formation of the constitutional government. This draft was
presented to the Generalissimo on a confidential basis on January 23.

THE PCC RESOLUTIONS

The PCC resolutions provided for convening a National Assembly
on May 5, 1946, for the purpose of adopting a constitution and for
the formation of a Constitution Draft Committee to draw up a
detailed plan for revision of the 1936 Draft Constitution based on
the principles agreed upon by the PCC, as well as recommendations
of various associations connected with the promotion of constitu-
tionalism in China. This plan was to be submitted to the National
Assembly for adoption. The PCC resolutions also provided that, pend-
ing the convening of the National Assembly, the Kuomintang would
revise the organic law of the National Government to make the State
Council the supreme organ of the Government in charge of national
affairs. This Council was to be composed of 40 members, who would
be chosen by the Generalissimo from Kuomintang and non-Kuomin-
tang members. Half of the Councillors would be members of the
Kuomintang and half members of other parties and non-party per-
sonnel. The specific allotment of seats of non-Kuomintang Coun-
cillors was to be the subject of separate discussion after the adjourn-
ment of the PCC. The PCC resolutions regarding the State Council
empowered the President to veto any decision of the Council, and
such a veto could be overridden only by a three-fifths vote of the
Council. General resolutions would require a majority vote of the
Councillors present, but any resolutions involving changes in the
administrative policy would be required to have a two-thirds vote of
the members present for approval. However, a majority vote of
the members present would be sufficient to decide whether a resolu-
tion involved a change in administrative policy. The PCC resolutions
regarding the membership of the State Council and the question of
the veto power subsequently played an important part in the negotia-

140

U. S. RELATIONS WITH CHINA

tions between the Chinese Government and the Chinese Communist
Party. The question of the veto power arose in discussions regarding
membership in the State Council. The Chinese Communist Party
began to advance claims for control of at least 14 seats in the Council
among its own members and friendly nominees. With this number
the Chinese Communist Party would have sufficient voting strength
to exercise a veto to prevent changes in the PCC resolutions.

Under the Program for Peaceful National Reconstruction of the
PCC resolutions, the equality and legality of all political parties were
recognized and all parties were pledged to recognize the national
leadership of President Chiang Kai-shek. The program provided
inter alia for the maintenance of the status quo in liberated areas
where the government was under dispute until a settlement should
be made by the National Government after its reorganization, a point
of considerable importance in later negotiations.

Under the PCC resolutions on military problems, provision was
made for reorganization and reduction of the armies and the creation
of a national army belonging to the State in which no political parties
would be allowed to carry on political activities. It was also pro-
vided that the “Three-Man Military Commission” should agree upon
practical methods for the reorganization of the Chinese Communist
armies at an early date. It was further provided that, when the
reorganization of both the National Government and Communist
armies should be completed, all armies should again be reorganized
into 50 or 60 divisions.

THE MILITARY REORGANIZATION AGREEMENT OF
FEBRUARY 25, 1946

On January 10 the National Government suggested the formation
of a military committee to draw up measures for the reorganization
and redisposition of the Chinese armies. Such a committee had al-
ready been agreed to by the National Government and the Chinese
Communist Party during the negotiations ending in October 1945.
The Chinese Communist Party representatives agreed to this proposal
and both the Chinese Government and the Chinese Communist Party
expressed their approval of General Marshall’s participation in this
committee as an adviser. This committee, known as the Military Sub-
committee, was composed of General Chang Chih-chung as the Na-
tional Government representative, General Chou En-lai as the Chinese
Communist Party representative and General Marshall as adviser.

The Military Subcommittee held its first meeting on February 14,
1946, and on February 25 reached an agreement entitled “Basis for
Military Reorganization and for the Integration of the Communist
Forces into the National Army.” In the press release announcing

THE MISSION OF GENERAL GEORGE C. MARSHALL 141

the agreement, 7 it was explained that the purpose of the agreement
was to facilitate the economic rehabilitation of China and at the same
time to furnish a basis for the development of an effective military
force capable of safeguarding the security of the nation, including
provisions to safeguard the rights of the people from military in-
terference. It was also pointed out that the Executive Headquarters
at Peiping would be charged with responsibility for supervising the
execution of orders necessary to the implementation of the agreement
and that the measures to be decided upon by the Military Subcom-
mittee for the execution of the terms of the agreement would be carried
out over a period of 18 months.

The terms of the agreement envisaged the reduction of the National
Government armies to 90 divisions at the end of 12 months and the
reduction of the Chinese Communist forces to 18 divisions during
that same period. A further reduction at the end of the following
6 months provided for 50 National Government divisions and 10
Communist divisions, the total of 60 divisions of not more than 14,000
men each to be formed into 20 armies. The process of integration was
provided for initially during the seventh month. The National Gov-
ernment and the Chinese Communist Party were required under the
agreement to make provisions for the supply, movement and employ-
ment of their respective demobilized personnel, the National Govern-
ment to assume this responsibility for all demobilized personnel as
soon as practicable. For purposes of integration and deployment,
China was divided into five general areas as follows : Northeast China,
Northwest China, North China, Central China and South China
(including Formosa) and a specific number of armies was provided
for each area at the end of the 12-month period and again at the end
of the full 18-month period. Provision was made for the following
distribution of the armed forces at the end of 18 months : Northeast
China (Manchuria) — 14 National Government divisions and 1 Com-
munist division; Northwest China — 9 National Government divisions;
North China — 11 National Government divisions and 7 Communist
divisions; Central China — 10 National Government divisions and 2
Communist divisions; and South China (including Formosa) — 6
National Government divisions.

In discussions leading to this agreement, General Marshall en-
deavored to emphasize as strongly as possible the necessity of creating
in China a national, nonpolitical military force along the lines of
western military tradition, to be used as a democratic army and not as
an authoritarian weapon. The agreement reached was based upon the
general principle of separating the army from politics and, although

See annex 69.

142

U. S. RELATIONS WITH CHINA

this idea was not expressly stated in the agreement, the various articles
adhered to this general plan. This principle was of the greatest
importance in China, where political power in the final analysis was
dependent upon the possession of military force and where the military
constantly interfered with civil administration or were themselves
legally in control of civil administration by appointment to office. In
a brief speech at the time of the signing of this agreement General
Marshall made the following statement: “This agreement, I think,
represents the great hope of China. I can only trust that its pages
will not be soiled by a small group of irreconcilables who for a selfish
purpose would defeat the Chinese people in their overwhelming desire
for peace and prosperity.”

The agreement required the National Government to prepare and
submit to the Military Subcommittee, within 3 weeks of the promulga-
tion of the agreement, a list of the 90 divisions to be retained and the
order of demobilization of units during the first 2 months. Such a list
was submitted on March 26. The agreement similarly provided for the
preparation and submission to the Committee by the Chinese Com-
munist Party, within 3 weeks of the promulgation of the agreement,
of a complete list of all its military units, together with a list of the
18 divisions to be retained and the order of demobilization of units
during the first 2 months — a provision with which the Communists
never complied. It was further provided that within 6 weeks after
the promulgation of this agreement both the National Government
and the Chinese Communist Party should furnish to the Committee
lists of the units to be demobilized.

Agreement was reached by the Military Subcommittee on February
27, 1946, on a directive 8 to the Executive Headquarters implementing
the basic plan for military reorganization and integration of the Com-
munist armies into the National Army. The directive, signed on
March 16, 1946, established the Executive Headquarters as the agency
for the execution of the basic plan and provided for the formation of
a group in the headquarters, composed of National Government,
Chinese Communist Party, and United States personnel, to plan and
supervise the execution of the plan. The directive also provided for
the complete disbandment within 3 months of Chinese puppet units
who had served the Japanese and for the establishment of a 12- week
basic training program for the National Government and Communist
Party divisions to be retained. The directive recommended the estab-
lishment of a Demobilized Manpower Commission, which should co-
ordinate its efforts with those of the Government, the Communist

8 See annex TO.

THE MISSION OF GENERAL GEORGE C. MARSHALL 143

Party, civilian agencies, relief organizations, and the Executive Head-
quarters.^

The conclusion of the agreement for military reorganization marked
the third major step in bringing peace to China and in establishing
a basis for unification of the country. The cessation of hostilities
agreement was designed to bring to a halt actual fighting in order
that negotiations for a political and military settlement could be car-
ried on in an atmosphere of peace. The PCC resolutions represented
an agreement on the questions of governmental reorganization and
the establishment of a constitutional government. The Basis for
Military Reorganization similarly provided an agreement on the
question of integration of the Communist Party armed forces into
the National Army and the reorganization of all armies in China
on a democratic base.

It should be noted that the political and military agreements recog-
nized the preponderant strength of the Kuomintang position in the
National Government. In the interim State Council, which was to
function until the establishment of constitutional government through
action of the National Assembly, the Kuomintang was allocated 20
of the 40 seats. The President was empowered to veto any decision
of the Council and his veto could be overriden only by a three-fifths
vote of the members of the Council. Under the military reorgani-
zation plan, the preponderant strength of the National Government
was recognized by provision for a National Government superiority
of 5 to 1 in relation to the Communist forces, by which at the end of
the 18-month reorganization and integration period the National
Army would have 50 Government and 10 Communist divisions.

CHINESE PUBLIC REACTION

The immediate reaction of the Chinese public to the cessation of
hostilities and the announcement of the PCC resolutions was one of
enthusiastic approval, tempered by the realization that the imple-
mentation of the resolutions would be the acid test by which the sin-
cerity of the two rival parties could be gauged. The indication of
strong resentment against the PCC on the part of powerful groups
within the Kuomintang and the opposition by a powerful group of
National Government Army generals to any reorganization of the
armies which would threaten their position were seen as obstacles,
on the Kuomintang side, to successful implementation of the resolu-
tions. Disquieting incidents, such as an attack by alleged Kuomin-
tang plain-clothes men on a mass meeting held at Chungking to cele-
brate the success of the PCC, police interference with minority party
delegates to the PCC, and an attack on the Communist Party news-

** See Annex 71.

144

U. S. RELATIONS WITH CHINA

paper premises at Chungking, all served to strengthen the fears of
opposition to the PCC by irreconcilable elements in the Kuomintang.

KUOMINTANG ACTION ON THE PCC RESOLUTIONS

The next step in connection with the PCC resolutions of January 31
was that of obtaining legal action by the National Government to
approve these resolutions. The Central Executive Committee (here-
after called the CEC) of the Kuomintang met at Chungking from
March 1 to 17 for the purpose of passing upon the PCC resolutions.
Simultaneously with the CEC sessions, there were also held at Chung-
king meetings of the PCC Steering Committee and the PCC Constitu-
tional Reviewing Committee, in which discussions were held of points
which the CEC reportedly wished to have revised. Although the CEC
announced at the end of its sessions that it had approved the PCC
resolutions in toto , 9 there were indications that approval had been
hedged by reservations and that irreconcilable elements within the
Kuomintang were endeavoring to sabotage the PCC program. Their
efforts were reportedly directed toward revisions of the principles
approved by the PCC as the basis for revising the Draft Constitution
and toward obtaining close adherence to the May 1936 Draft Consti-
tution, on which the Kuomintang had originally insisted in the PCC
sessions.

Discussions regarding the PCC resolutions continued in the PCC
Steering Committee after the adjournment of the Kuomintang CEC
on March 17. During this period the Communist Party and Demo-
cratic League representatives maintained the general position that the
PCC resolutions had been agreed upon by duly authorized representa-
tives of all parties and indicated that they would oppose any major
changes in the resolutions. The Communist Party and Democratic
League, therefore, refused to nominate members to the State Council
for participation in a reorganized government until the Kuomintang
should publish a statement of any revisions of the PCC resolutions
agreed upon and of a definite commitment by the Kuomintang to
implement the PCC program as revised. In the meantime, the Com-
munist Party postponed its Central Committee meeting, originally
scheduled for March 31 for the purpose of passing upon the PCC reso-
lutions. Under these circumstances the PCC Constitutional Review-
ing Committee suspended its w T ork upon preparation of a revised
constitution to submit to the National Assembly, still scheduled to meet
on May 5, but later postponed and not convened until November.

9 See annex 72.

THE MISSION OF GENERAL GEORGE C. MARSHALL 145

GENERAL MARSHALL’S RECALL FOR CONSULTATION

Following the signing of the military reorganization agreement
General Marshall had recommended to President Truman that he be
recalled to Washington for a brief visit. He felt that he should report
to the President on the situation in China and he was particularly
anxious to take up the question of the transfer of surplus property and
shipping and the problem of loans to China. He also wished to make
a personal presentation of the situation in China regarding Unrra
and famine conditions. He was of the opinion that he should make
a brief visit to obtain financial and economic facilities to aid China
and return to China in time to assist in adjusting differences which
were certain to arise over the major problems connected with the
agreements reached. It was his opinion that steps had to be taken
to assist China and its people in the increasingly serious economic
situation and to facilitate the efforts being made toward peace and
unity in China and toward the establishment of a unified defense
force. General Marshall felt that Chinese political and military unity
could only be consolidated and made lasting through the rehabilitation
of the country and the permanent general improvement of economic
conditions. President Truman approved the recommendation and
formally recalled him to Washington for these purposes. He accord-
ingly departed for Washington on March 11, 1946.

III. THE MANCHURIAN CRISIS

FIELD TEAMS FOR MANCHURIA

The cease-fire agreement of January 10, 1946, made no mention
of any exemption of any part of China from its provisions, except
in regard to the movement of troops, and there was no implication
or indication in the meetings of the Committee of Three that Man-
churia was not included within the scope of the cessation of hostilities
order. General Marshall felt very strongly that the authority of the
Executive Headquarters in Manchuria should be asserted in order to
avoid possible future clashes and difficulties between the two opposing
Chinese forces if the Russian troops should withdraw from Man-
churia. The matter was complicated by the continued delay in the
withdrawal of Russian troops, resulting in suspicion on the part of the
National Government of Russian intentions and aims in Manchuria
and in the consequent inability of the National Government to assume
control in that area.

With these circumstances in mind and as a result of reports of fight-
ing at Yingkow, a port in south Manchuria, General Marshall pro-

146

U. S. RELATIONS WITH CHINA

posed on January 24, 1946, that an Executive Headquarters field team
be sent immediately to Yingkow and that in the event of future inci-
dents of this kind similar action be taken. 10 The National Govern-
ment was unwilling to agree to this proposal, although the Chinese
Communist Party gave its approval. On February 20 General Mar-
shall again, but without success, proposed that field teams be sent to
Manchuria, pointing out the need of such teams both in stopping
possible conflicts and in establishing a basis for the demobilization
of the armies under the plan for military reorganization and integra-
tion. While the Chinese Communist Party acquiesced in this pro-
posal, the National Government remained adamant in spite of a de-
terioration of the situation in Manchuria. At this stage the National
Government seemed determined to incur no restraints on its freedom
of action in Manchuria and appeared bent on a policy of complete
military occupation of the area and elimination of the Chinese Com-
munist forces if they were encountered, even though it did not have
the military capability of achieving these objectives.

It was not until March 11, the day of General Marshall’s departure
for Washington, that the Generalissimo finally agreed to the entry of
Executive Headquarters field teams into Manchuria, but with numer-
ous conditions stipulated, so that agreement on a directive for the
entry of the teams into Manchuria was not reached until March 27. * 11
This directive was not, however, sufficiently broad to enable the teams
to bring about a cessation of the fighting, which meanwhile was
developing into a dangerous situation for the National Government
forces.

In addition to this difficulty, there was a justified complaint by the
Chinese Communists that the National Government commander at
Canton had violated the terms of the cessation of hostilities order by
refusing to recognize the authority of the Executive Headquarters in
his area of command, and that the Supreme Headquarters of the
National Government armies at Nanking had failed to carry out the
specific stipulation of the cease-fire order to report all movements of
the National Government troops to the Executive Headquarters at
Peiping. There had been, of course, a number of minor infractions
of the cease-fire order by subordinate commanders on both sides.
There was also a difficult problem in the north Hupeh-south Honan
area where about 60,000 Communist troops, encircled by Government
troops, were having difficulty in obtaining food supplies.

The extended delay in the sending of teams to Manchuria, caused
first by the National Government’s refusal to give its approval for such

10 See annex 73.

11 See annex 74.

THE MISSION OF GENERAL GEORGE C. MARSHALL 147

action and later by the inability of the two Chinese representatives to
agree on a suitable directive for the teams, had already resulted in a
serious situation. The Chinese Communist Party in Manchuria was
steadily extending the area of its control. The Russian withdrawal
from Manchuria, originally scheduled to be completed by December 3,
1945, had been postponed until February 1, 1946, in accordance with
an agreement between the Chinese and Soviet Governments. In early
March, however, the Chinese Government formally requested the with-
drawal of the Russian forces from Manchuria. Subsequent to this
request, the Soviet Government agreed to the progressive and com-
plete withdrawal of its armies beginning on April 6 and ending on
April 29. When the Russian troops did withdraw toward the north,
the National Government found itself with extended lines of com-
munication and limited railroad rolling stock. Although it had ap-
proximately 137,000 troops in Manchuria and the adjoining areas of
Jehol Province by mid-March, these were insufficient to move into all
the areas evacuated by the Russian armies in time to prevent their
occupation by the Chinese Communists. The Chinese Communist
forces were moving both into areas from which Russian troops were
withdrawing and into the hinterland between the lines of communica-
tion where there had been no occupation forces. The movement
of National Government troops into and within Manchuria for the
purpose of restoring Chinese sovereignty had been provided for in
the cease-fire agreement. The entry of the Chinese Government forces
had, however, been seriously impeded by the Russian refusal to permit
their use of Dairen as the port of entry and their continued advance
subsequent to their entry had been blocked by the delay in the Russian
withdrawal. This delay also had the effect of giving the Chinese
Communists time to build up their forces in Manchuria, which had
apparently been reinforced by the movement of hastily organized or
reinforced units from Chahar and Jehol Provinces. While these
movements had begun in August and September 1945, there was
evidence of the unauthorized continuation of the movement after J an-
uary 13, 1946. Chinese Communist political infiltration was also
facilitated by the delayed Russian withdrawal. In addition, the
Chinese Communists were enabled to take over and put into use among
their troops stores of weapons and military supplies possessed by the
Japanese at the time of their surrender and made available directly
or indirectly by the Russians.

Further delay and increased distrust between the National Govern-
ment and the Chinese Communists had resulted from the actions of
the National Government commander in Manchuria in seeking to
establish military control in the rural areas removed from the main

148

U. S. RELATIONS WITH CHINA

lines of communication, there being no Executive Headquarters field
teams to moderate or regulate the procedure where National Govern-
ment and Chinese Communist forces were in contact. These tactics
had brought him in violent conflict with Chinese Communist forces in
the hinterland, who were thus in a position to level the accusation
that his chief aim was to eliminate their forces rather than to restore
Chinese sovereignty in Manchuria.

This situation made a solution of the political impasse immeasurably
more difficult, as it created considerable misgivings among the Chinese
with regard to the relationship of the Chinese Communists to the Soviet
Union and strengthened the position of irreconcilable elements within
the Kuomintang, which would have been opposed to the political solu-
tion offered by the PCC resolutions under any circumstances. The sit-
uation in Manchuria, however, presented them with a plausible excuse
for resisting any limitation of Kuomintang governmental authority
under such circumstances. Chinese Communist resentment and sus-
picions, in turn, were aroused by the obvious intention of the National
Government to assume complete military and political control in Man-
churia through new administrative appointees for Manchurian posts
from among the most anti-Communist elements in the Kuomintang.

In spite of the deterioration in the general situation, agreement was
reached in the PCC Steering Committee on April 1 in regard to the
National Assembly. Following this agreement, however, subsequent
meetings of the PCC Steering Committee ended in a virtual stalemate
and, with the worsening of the situation in Manchuria, it became
apparent that no real settlement of governmental and constitutional
questions in China could be reached so long as the Manchurian problem
remained unsolved. This meant an indefinite postponement of the
National Assembly, originally scheduled for May 5. Matters were
further complicated by the continued refusal of the Chinese Commun-
ist Party to submit a complete list of its military units in accordance
with the Military Reorganization Agreement of February 25.

In spite of agreement authorizing the entry of Executive Head-
quarters field teams into Manchuria, the National Government offered
obstructions to the functioning of the teams, first by the refusal of the
Commanding General in Manchuria to permit the teams to enter Man-
churia and later by the refusal of the National Government members
of the teams to take any action on the basis that they had no authority.
It was not until April 8 that the field teams proceeded to areas of
conflict in Manchuria, where the situation was complicated by develop-
ments connected with the Russian withdrawal. Subsequent to their
withdrawal from Mukden, for example, the Russian military authori-
ties refused to approve the National Government’s use of the rail line

THE MISSION OF GENERAL GEORGE C. MARSHALL 149

north toward Changchun for the transportation of Chinese troops,
alleging that it was prohibited by the terms of the Sino-Soviet Treaty
of August 1945. It was also reported that the Russian authorities had
rejected a request by the Chinese Government for the retention of
small Russian garrisons in the points then being evacuated by Russian
troops until the National Government’s troops should arrive to take
over sovereignty at such places.

Another phase of the Manchurian situation, one which was the sub-
ject of frequent propaganda attacks by the Chinese Communist Party,
was the transportation of National Government troops by American
facilities. On March 31 the Chinese Communists protested the further
transportation of Chinese Government armies into Manchuria by
American vessels on the ground that the military reorganization plan
of February 25 restricted the number of Government troops in Man-
churia to 5 armies. It was pointed out to General Chou En-lai that
the limitation of Government troops in Manchuria, set forth in the
military reorganization plan, was not to be effective until the end of 12
months and that the movement of National Government armies into
Manchuria had been authorized by the cessation of hostilities order
of J anuary 10.

CHINESE COMMUNIST OCCUPATION OF CHANGCHUN

On April 15, 1946, the day after the withdrawal of Russian troops
from Changchun, the Chinese Communist forces attacked the city,
and occupied it on April 18. This action was a flagrant violation of
the cessation of hostilities order and an act which was to have serious
consequences. It made the victorious Chinese Communist generals
in Manchuria overconfident and less amenable to compromise, but
even more disastrous was the effect upon the National Government.
It greatly strengthened the hand of the ultra-reactionary groups
in the Government, which were then in a position to say that the
Communists had demonstrated that they never intended to carry out
their agreements.

At the time of General Marshall’s return to China on April 18,
the impasse was complete, except that the Chinese Communists were
willing to submit the future military dispositions and local political
reorganization to negotiations if the fighting were terminated. The
National Government declined such compromises, on the grounds that
the cessation of hostilities order clearly gave National Government
troops the right to proceed anywhere in Manchuria necessary to estab-
lish sovereignty, and stated that negotiations regarding political ques-
tions would be considered only after sovereignty had been established
along the railway mentioned in the Sino-Soviet Treaty of August

150

U. S. RELATIONS WITH CHINA

1945. The Government was militarily powerless, however, to enforce
such demands. General Marshall submitted a proposal to the Gen-
eralissimo in keeping with what he believed to be the Generalissimo s
view that the Government could not and would not advance farther
north, but discovered that the Generalissimo had in mind the use of
force to occupy Changchun and overpower the Chinese Communist
troops in that region.

At the beginning of May the Generalissimo finally came to the point
of proposing the same conditions for a settlement of the Manchurian
problems that the Chinese Communists had actually proposed about
six weeks earlier, before the Communists had captured Changchun.
It was also demanded that Chinese Communist forces evacuate Chang-
chun and permit Government troops to occupy it, indicating that
following the occupation of Changchun negotiations would begin
regarding military dispositions and political reorganization.

The successful Chinese Communist commanders in the Changchun
region, however, had been strengthened by their acquisition of Jap-
anese military equipment and stores, including medium artillery
and tanks, while the National Government’s military position grew
weaker as its forces advanced, owing to the great distances over
which its troops had to move in proceeding northward. The
Chinese Communists therefore did not accept the Government’s
terms and General Chou En-lai urged General Marshall to with-
draw shipping support from the National Government armies in
order to force the hand of the Generalissimo. The Generalis-
simo’s advisers were urging a policy of force which they were not
capable of carrying out, even with American logistical support
and the presence of United States Marines in the North China ports
of Tsingtao and Tientsin and up the railway line toward the port
of Chinhuangtao, from which the coal essential for the industries of
the lower Yangtze Valley area was shipped south.

GENERAL MARSHALL’S APPRAISAL OF THE SITUATION

In conversations with National Government leaders General Mar-
shall endeavored to emphasize the seriousness of the situation. He
pointed out that many of the existing difficulties could have been
avoided earlier by the National Government but that the situation
was now reversed ; that there was a complete lack of faith and a feeling
of distrust on both sides and that each side saw behind all proposals
from the other an evil motive; that the National Government had
blocked the sending of field teams into Manchuria which might have
been able to control the situation; that while the Communists said
that the cessation of hostilities order of January 10 applied to all of

THE MISSION OF GENERAL GEORGE C. MARSHALL 151

China, the National Government resisted its application to Man-
churia; that when the National Government troops moved into Man-
churia they attempted to destroy the Chinese Communist forces in the
hinterland ; and that the Generalissimo’s military advisers had shown
very poor judgment. He continued that in many instances the Na-
tional Government authorities had offered opportunities to the Com-
munist Party to make accusations against their good faith: (1) the
situation north of Hankow, where Communist troops were surrounded
by large Government concentrations; (2) the movement of Govern-
ment troops toward Chihfeng, Jehol Province, under orders issued
by the National Government military headquarters at Chungking in
violation of the cease-fire order; (3) the refusal of the Commanding
General at Canton to recognize the existence of Communist troops in
that area as well as the orders of the Executive Headquarters and the
National Government at Chungking regarding Executive Headquar-
ters’ investigation of the situation in this area; (4) the failure of
the National Government Army Headquarters to submit daily reports
of its troop movements south of the Yangtze River, as was clearly
required by the cessation of hostilities order; (5) the search of homes
of Chinese Communist Party personnel and closure of Chinese Com-
munist newspaper offices at Peiping; (6) the “buzzing” of the air-
field at Yenan by National Government planes; and ( 7 ) the detention
of Chinese Communist field team personnel at the airfield at Mukden.
General Marshall characterized these acts as stupid actions of no ben-
efit to the National Government, which not only served as ammuni-
tion to the Chinese Communists, but, what was far more serious, stimu-
lated their suspicion of Government intentions. He said that the
Kuomintang had had an opportunity to have peace in Manchuria but
had not utilized the opportunity, and concluded that the Chinese Com-
munists were now taking advantage of the existing situation and were
becoming stronger daily, thus placing the National Government in
a very dangerous military position with over-extended lines and a
constantly increasing dispersion of forces.

The reaction of the Chinese Communists was revealed by their desire
to change the ratio of military strength in Manchuria. General Chou
En-lai informed General Marshall that the Communist Party wished
to revise the ratio of 1 Communist division to 14 Government divi-
sions in Manchuria provided for in the military reorganization agree-
ment at the end of 18 months, and was adamantly opposed to the
movement of additional Government troops in Manchuria. General
Marshall explained that, when the United States had completed the
movement of the seven National Government armies into Manchuria
which it was committed to transport to that area, a total of 228,000

152

U. S. RELATIONS WITH CHINA

Government troops would have been moved by American facilities.
However, the total National Government strength at the end of 12
months authorized for Manchuria in the military reorganization
agreement would be approximately 240,000 men.

In further discussions with General Chou En-lai, General Marshall
stated that in his opinion the fundamental difference between the
positions of the two sides lay in the question of sovereignty in Man-
churia; that sovereignty implied control and control could not be held
by the National Government unless it occupied Changchun; and that
the Generalissimo had made a significant concession to the Chinese
Communists by his willingness to hold open for negotiation problems
relating to the remainder of Manchuria provided the Communist
forces evacuated Changchun. He further stated that he had done his
best in an effort to negotiate this critical problem but that the matter
had virtually passed out of his hands. He added that he did not see
that he could accomplish anything more through mediation, since at
that time his position in endeavoring to persuade the Government
to take various actions had been heavily compromised by the Com-
munist attack on Changchun.

GENERAL MARSHALL’S TEMPORARY WITHDRAWAL FROM
MEDIATION

At this point General Marshall withdrew from formal mediation
between the two parties for a settlement of the Manchurian problem.
He did, however, continue to hold separate conferences with repre-
sentatives of the two sides and to act as a channel of communication
between them. The diminishing effectiveness of the Executive Head-
quarters field teams was a matter of particular concern at this time.
Executive Headquarters reports during this period revealed the com-
plete opposition of the Communist members, at the operations level in
the Headquarters and in the field teams, toward any common sense
action which should be taken by the teams. United States Army
officers had originally been impressed by the high degree of coopera-
tion by the Communists, but the Communist tactics of blocking action
had lowered American confidence in their sincerity. In view of these
difficulties the Committee of Three discussed the matter and on May
14 reached agreement on a document designed to ensure more prompt
investigation of reported violations of the cessation of hostilities
order. 12

During his discussions with National Government leaders, General
Marshall continued to point out that the time element was of great im-
portance. The situation in North China was becoming more serious

12

See annex 75.

THE MISSION OF GENERAL GEORGE C. MARSHALL 153

with two major irritants affecting the situation there — the unsettled
question of the destruction of railway fortifications and the failure of
the National Government to report its routine troop movements to the
Executive Headquarters. The situation, in North China was, of
course, dominated by the outcome in Manchuria, and continued failure
to find a solution in Manchuria would probably make the Executive
Headquarters completely ineffective. A solution was made more dif-
ficult by the repeated insistence of the Generalissimo in discussions
with General Marshall that he would not sign or agree to any settle-
ment that did not provide for evacuation of Changchun by the Com-
munists and its occupation by the Government and that he would
accept nothing less than complete National Government sovereignty
in Manchuria. Under these circumstances General Marshall con-
sidered it unwise for him to re-enter the negotiations in the capacity
of mediator, since there was no basis for agreement by the Chinese
Communist Party and he did not wish to be placed in a position where
he would have no power to avert an otherwise certain stalemate.

SUGGESTED COMPROMISE SOLUTION

At the request of the Generalissimo for his views General Mar-
shall suggested that a compromise solution of the Manchurian issues
be reached which would provide for Communist withdrawal from
Changchun and the establishment of an advance echelon of the Execu-
tive Headquarters at that city as a basis for terminating the fighting
preliminary to entering into negotiations. This solution would also
envisage the occupation of Changchun by the Government troops with-
in a maximum time of six months, preferably much sooner. General
Marshall’s conclusions as communicated to the Generalissimo, were as
follows :

The Government’s military position was weak in Manchuria and
the Communists had the strategical advantage there. The psycho-
logical effect of a compromise on the part of the Government to
achieve peace would not injure its prestige but would indicate that the
Generalissimo was making every effort to promote peace. The pro-
posal to utilize the Executive Headquarters in Changchun would bol-
ster the conviction that the Generalissimo was striving for peace.
Finally some compromise must be reached as quickly as possible or
China would be faced with a chaotic situation, militarily, financially
and economically.

General Marshall suggested the same general solution on May 13
to General Chou En-lai, who said that he would transmit the proposal
to Yenan. General Marshall emphasized that, unless he could be
reasonably certain of the position of the Communist Party on military

154

U. S. RELATIONS WITH CHINA

and political issues, it would be impossible for him to resume the role
of mediator and that he could not again place himself in the position
of being a party to an agreement which included provision for
negotiations regarding vital or fundamental differences unless he had
reasonable assurance of a favorable outcome. The Chinese Com-
munist reply to this proposal indicated apprehension that the Govern-
ment might raise the question of other cities, such as Harbin, once it
occupied Changchun. The Communists also stated that they desired
to have five divisions in Manchuria instead of the one division author-
ized in the military reorganization agreement.

Daily discussions between the Generalissimo and General Marshall
were held at this time regarding the detailed terms for a military set-
tlement, the redistribution of troops as a condition precedent to the
issuance of a cease-fire order, and tentative arrangements whereby
the Communists would voluntarily evacuate Changchun and an ad-
vance section of the Executive Headquarters would assume control
of the city, pending a further settlement of problems relating to
Changchun and the areas north of that city. On May 22 the
Generalissimo informed General Marshall that he had not heard from
his military commanders in Manchuria for three days and that he
feared that following their capture of Ssupingchieh on May 19 (after
fighting lasting over a month) they were advancing toward Chang-
chun. The Generalissimo expressed agreement with General Mar-
shall’s view that occupation of Changchun at a time when the basis
of an agreement with the Communists was practically completed
would be inadvisable and said that he was leaving for Mukden on
May 24 in order to keep control of the situation. General Marshall
pointed out the danger of a delay and expressed the hope that the
Generalissimo would return as soon as possible in order that the
negotiations could be carried to completion. Generalissimo Chiang
Kai-shek departed for Mukden on May 23, his departure on this
11-day trip being the first of a chain of events which were almost
completely disastrous in their effect on the situation. The fact that
the Generalissimo requested and received the use of General Mar-
shall’s official airplane for the trip served to heighten the public im-
pression of General Marshall’s close connection with the trip and to
add to the embarrassment that later developed.

On May 23 General Marshall conveyed to General Chou En-lai three
points set forth by the Generalissimo prior to his departure as con-
ditions precedent to any general agreement: (1) The Chinese Com-
munist Party must make every effort to facilitate the restoration of
communications; (2) in any agreement regarding Manchurian issues,
provision must be made for carrrying out the military demobilization

THE MISSION OF GENERAL GEORGE C. MARSHALL 155

and reorganization plan within specified dates; and (3) the Generalis-
simo would not commit himself to further agreements without tin
understanding that when field teams or high staff groups reached an
impasse, the final decision would be left to the American member.
General Marshall also asked General Chou En-lai whether the Com-
munist Party would agree to the proposal for the evacuation of
Changchun by the Communist troops, the entry into Changchun of the
advance section of the Executive Headquarters, and the cessation of
further advances of Government troops.

General Chou En-lai stated that the Communist Party would agree
to the three proposals suggested by General Marshall but that the
Generalissimo’s three conditions were new. He added that he would
endeavor to solve the communications problem with the National
Government representative and that he had no objection to the second
condition. With respect to authority for decision by American mem-
bers, he said that this would have to be discussed with his associates.

NATIONAL GOVERNMENT CAPTURE OF CHANGCHUN

On May 23 the National Government’s forces entered Changchun,
following a Communist withdrawal from that city and little or no
opposition from the Communist forces after the Government capture
of Ssupingchieh on May 19. The absence of the Generalissimo from
Nanking and the difficulty of communication with him by General
Marshall made for an extremely unsatisfactory situation at a most
critical moment. The Generalissimo’s presence in Mukden at the
time of the capture of Changchun conveyed the impression of a
journey timed to coincide with a previously planned military triumph,
and public pronouncements by the Generalissimo in Mukden tended
to heighten this impression. In spite of General Marshall’s appeals
by radio for the issuance of an order for the cessation of offensive
operations, the Generalissimo took no action toward that end, although
his earlier insistence had been on the evacuation of Changchun and its
occupation by Government forces as a precedent to further negotiation
and the issuance of a cease-fire order. To make matters more serious,
the Government troops, after their occupation of Changchun, con-
tinued to advance north along the rail line toward Harbin and toward
Kirin to the east, and the result was to increase Communist suspicion
and distrust of Government promises and to place General Marshall’s
impartial position as a possible mediator in a questionable light insofar
as the Communists were concerned. The positions were now reversed.
Where formerly difficulties arose from the Communist attack on
Changchun in open violation of the cease-fire order and the consequent
stronger stand taken by the Chinese Communist generals in Man-

156

U. S. RELATIONS WITH CHINA

cliuria, the new situation played directly into the hands of the National
Government military commanders in Manchuria, who now felt certain
that they could settle the problem by force and were therefore disin-
clined to compromise with the Communists.

GENERALISSIMO CHIANG’S PROPOSALS OF MAY 24, 1946

On May 24 the Generalissimo forwarded to General Marshall from
Mukden his formal conditions for the restoration of peace. He
demanded the execution of the cessation of hostilities agreement of
January 10, which specifically related to freedom of action for the
Nanking Government in taking over sovereignty in Manchuria, and
of the agreement for military reorganization of February 25. The
Generalissimo placed first importance on a Communist demonstration
of good faith by permitting National Government agencies to restore
communications in North China and stipulated again that in the Exec-
utive Headquarters and its field teams American members should cast
the deciding vote. He also asked General Marshall whether he would
guarantee Communist good faith in carrying out agreements. No
mention was made by the Generalissimo of his intention or willingness
to issue an order halting troop movements or to agree to the establish-
ment of an advance section of the Executive Headquarters at Chang-
chun, both of which had been proposed by General Marshall at the
time of the Generalissimo’s departure for Mukden with the suggestion
that the Generalissimo might reach a decision while in Mukden and
inform General Marshall.

General Marshall, therefore, dispatched a message to the General-
issimo at Mukden requesting explanatory details regarding his general
statements, proposing the immediate movement of a section of the
Executive Headquarters to Changchun and urging him to issue an
order immediately directing the cessation of attacks, pursuits, or
advances while the details of a truce were being arranged. General
Marshall urged him to avoid the painful results of previous mistakes
in forging ahead in Manchuria without granting permission for the
presence of field teams to prevent unnecessary skirmishing and the
more recent unfortunate results of the attitude of the belligerent
Chinese Communist commanders at Changchun. General Marshall
also asked for an explanation of the meaning of the Generalissimo’s
use of the word “guarantee” in reference to General Marshall’s role.

On May 28 the Generalissimo again communicated with General
Marshall, repeating the terms previously set forth but agreeing to a
qualification General Marshall had suggested regarding the power of
decision of Americans in the Executive Headquarters and its field
teams. The Generalissimo also stated that, with respect to the

THE MISSION OF GENERAL GEORGE C. MARSHALL 157

method of recovering sovereignty in Manchuria, the National Govern-
ment could not abandon the taking over of administration in any area,
but might agree to send forward, after military advances had ceased,
only administrative officials and such military and police forces as
would be absolutely necessary for the maintenance of local order and
communications. He explained that, by use of the word “guarantee,”
he meant that General Marshall would set time limits for putting into
effect all agreements which General Marshall had signed and would
assume the responsibility of supervision over the strict observance of
such agreements on the part of the Chinese Communists.

Not having received this second message from the Generalissimo, on
May 29 General Marshall sent a further message to the Generalissimo
at Mukden, informing him that the continued advances of the National
Government troops in Manchuria in the absence of any action to ter-
minate the fighting, other than the terms indicated by him in his first
message from Mukden, was making General Marshall’s services as a
possible mediator extremely difficult and might soon make them virtu-
ally impossible. No reply having been received to this message, 13 Gen-
eral Marshall dispatched an additional message to the Generalissimo on
May 31 at Peiping, where the latter had just arrived, repeating the
substance of his previous message and stating that a point was being
reached where the integrity of his position was open to serious ques-
tion. General Marshall again requested the Generalissimo, therefore,
to issue immediately an order terminating advances, attacks or pur-
suits by the National Government troops and to authorize the im-
mediate departure of an advance section of the Executive Head-
quarters to Changchun.

In a message of June 1 from Peiping the Generalissimo informed
General Marshall that in all decisions he had kept in mind the diffi-
culty of General Marshall’s position and was doing everything in his
power to facilitate and assure the success of his work. He said that
he was prepared to agree to the proposal to send an advance section
of the Executive Headquarters to Changchun in the event of his not
being able immediately to issue orders to National Government troops
to terminate their advance.

During this period General Marshall continued to have conferences
with General Chou En-lai, National Government leaders, and repre-
sentatives of the minority parties. These representatives had offered
certain proposals for settlement of the Manchurian problem, but they
were not approved by either the National Government or the Chinese
Communist Party.

13 It later developed that General Marshall’s message of May 29 had missed
the 'Generalissimo in Mukden and was long delayed in delivery.

158 U. S. RELATIONS WITH CHINA

ARRANGEMENTS FOR A TRUCE

On June 3 the Generalissimo returned to Nanking. A discussion
of the situation with General Marshall indicated that a misunder-
standing on the part of the Generalissimo caused by mistranslation of
General Marshall’s message had prevented the immediate establish-
ment of an advance section of the Executive Headquarters in Chang-
chun. General Marshall, therefore, immediately directed its estab-
lishment. The Generalissimo agreed to issue an order to his armies
in Manchuria to cease advances, attacks or pursuits — in other words,
aggressive action — for a period of ten days to afford the Communists
an opportunity to prove their sincerity by completing negotiations
with the National Government during that period on the following
points: (1) detailed arrangements to govern a complete termination
of hostilities in Manchuria; (2) definite detailed arrangements, with
time limits, for the complete resumption of communications in North
China; and (3) a basis for carrying out without further delay the
agreement for military reorganization of February 25.

The Generalissimo first stipulated one week in which to complete
these negotiations but finally agreed to a period of 10 days. He in-
formed General Marshall that this would be his final effort at doing
business with the Communists, that the present indeterminate situa-
tion with communications blocked, coal barely obtainable in sufficient
quantities, and cities starving, could not be endured economically or
otherwise, and that all-out war would be preferable.

When the Generalissimo’s terms were presented to General Chou
En-lai by General Marshall, General Chou immediately asked for an
extension of the 10 days to one month but finally reduced his request
to 15 days on the ground that there were many complicated plans to
be agreed to and General Chou would have to fly to Yenan at least
once for conferences with Chinese Communist leaders.

On June 6 the Generalissimo and the Chinese Communist Party
issued separate announcements of orders halting advances, attacks, or
pursuits by their troops in Manchuria for a 15-day period beginning
at noon on June 7. 13a They also announced that during this period
agreements were to be reached regarding arrangements for the com-
plete termination of hostilities in Manchuria, complete resumption .of
communications in China, and execution without delay of the agree-
ment for military reorganization of February 25.

Constant negotiations followed the promulgation of these orders.
General Chou En-lai consulted the Communist leaders in Yenan and
returned to Nanking for discussions. An agreement for the resump-

131 See annex 76.

THE MISSION OF GENERAL GEORGE C. MARSHALL 159

tion of communications was reached after detailed discussions. 14
Little trouble was anticipated in reaching agreement on the detailed
arrangements for formal termination of hostilities in Manchuria. The
great difficulties to be resolved related to demobilization, reorganiza-
tion, and particularly redistribution of troops, especially in Man-
churia and Shantung Province. General Marshall’s problems during
this period also related to sporadic but violent fighting in various
localities, mostly in North China, which could not be halted on short
notice, since many of the actions had evidently been planned and
ordered a week or more in advance.

The rather virulent Communist propaganda attacks against the
United States and the alleged support by General Marshall of the
National Government in the fighting at this time were due to a con-
tinuation of an effort (1) to arouse American opposition to any mili-
tary representation in China and (2) to offset in the United States
the effect of the Generalissimo’s proposal to give American officers
the deciding vote in case of disagreements. The fact that just as
an agreement seemed to be on the verge of being reached the Generalis-
simo remained absent in Mukden and Peiping for a considerable period
while his armies exploited their successful action south of Changchun
aroused great suspicion against his good faith and particularly
against the impartiality of General Marshall’s attitude, since General
Marshall had advanced proposals to the Chinese Communists for
Communist evacuation of Changchun and the cessation of further
advances by National Government troops which the Communists had
accepted.

NEGOTIATIONS DURING THE TRUCE PERIOD

Negotiations during the truce period proceeded very slowly, due to
the reluctance of either side to commit itself in advance of the other
regarding reorganization and particularly redistribution of troops.
Fighting in Shantung Province, arising from a Communist offensive
at the beginning of the truce period and lasting for about a week,
proved to be a very disturbing factor, causing increased bitterness and
unwillingness to make concessions.

Several members of the PCC asked General Marshall to suggest the
convening of the PCC Steering Committee at this time to work
simultaneously on political problems while the Committee of Three
handled the military problems. General Marshall informed them
that this did not come within the scope of his authority. The General-
issimo had often said that he would not negotiate on political problems

14 See annex 77.

160

V . S. RELATIONS WITH CHINA

until he had occupied Manchuria. He had, however, later said that
after Government occupation of Changchun he would be prepared to
negotiate both political and military questions. General Chou En-lai
indicated that it would be preferable to omit discussion of political
matters and to preserve the status quo in the various areas. He pointed
out to General Marshall that, although the latter had been reluctant to
accept the Generalissimo’s proposal that the Committee of Three be
empowered to solve administrative problems, he felt that this matter
should be given further consideration. He added that, since General
Marshall did not wish to be involved in political decisions, the problem
could be solved by action to be taken by the reorganized Government.

On June 17 the Generalissimo indicated to General Marshall, for
transmission to General Chou En-lai, the nature of his demands. The
National Government proposals required the evacuation of Chinese
Communist forces from Jehol and Chahar Provinces before September
1, 1946 ; the occupation by Government forces of Chefoo and Weihai-
wai in Shantung Province; the reinforcement of Tsingtao with one
National Government army to permit the withdrawal of the United
States Marines stationed at that city ; the evacuation by the Chinese
Communists before July 1, 1946, of all localities in Shantung Province
forcibly occupied by Communist troops after noon of June 7, 1946;
the immediate occupation of these localities by Government garrisons ;
and the reinforcement of the Tientsin region by one Government army,
commencing September 1, 1946, to permit the withdrawal of the
United States Marine forces in that area. With respect to Manchuria,
the National Government proposals provided for Government occupa-
tion of various points then held by Communist forces, such as Harbin,
Antung, Tunghwa, Mutankiang, and Paicheng.

General Chou En-lai, after preliminary study of these proposals, in-
formed General Marshall that they were entirely too demanding to
admit of acceptance by the Chinese Communist Party. He stated
that, except for the restoration of the status quo in Shantung Province
prior to June 7, none of the points could be considered, and pointed
out that the date of June 7 should be applied to Manchuria only, in
accordance with the orders issued by both sides halting advances,
attacks or pursuits by their troops in Manchuria, beginning on that
date, while the restoration of original positions in China proper should
be based on January 13, in accordance with the cessation of hostilities
order of January 10. General Marshall also discussed the situation
with the Generalissimo and told him that there seemed to be no
likelihood that the Chinese Communists would accept his terms without
considerable modification. General Marshall had suggested to General
Chou En-lai that he fly to Yenan to consult with the leaders of his

THE MISSION OF GENERAL GEORGE C. MARSHALL 161

party, but after General Chou held a conference with Nationalist
Government officials he stated that nothing had occurred in this
conference to justify a trip to Yenan.

The principal stumbling block presented by the National Govern-
ment proposals did not appear to be in regard to readjustments in
Manchuria. Communist resentment was more aroused by the Na-
tional Government stipulations regarding North China, which re-
quired Communist evacuation of provinces and cities then under their
occupation and subsequent entry of Government troops into these
areas.

The negotiations had again reached an impasse, and there remained
only a few days before the truce period would expire. The situation
was extremely critical and had not been helped throughout by the
belief, freely expressed by some of the National Government military
officers and politicians, that only a policy of force would satisfy the
situation and that the Chinese Communists could be quickly crushed.
General Marshall considered the latter view a gross underestimate of
the possibilities, as a long and terrible conflict would be unavoidable,
and conveyed his views to the Generalissimo on this subject.

At the suggestion of General Marshall, the Generalissimo agreed
to extend the truce period until noon of June 30 for the purpose of
permitting further time to negotiate matters referred to in his original
15-day truce order. At the same time the Generalissimo presented two
additional terms: (1) The Communists were to withdraw from the
Tsinan-Tsingtao Railway before August 1, 1946, and (2) the pro-
cedure of unanimous vote in the Committee of Three and the Ex-
ecutive Headquarters was to be revised before June 30, 1946.

Negotiations during the extended truce period proceeded in formal
meetings of the Committee of Three with some prospect of success.
These meetings marked the formal re-entry of General Marshall into
the negotiations as mediator. The Chinese Communists made conces-
sions in granting the deciding vote to Americans on teams and in
Executive Headquarters regarding matters pertaining to cessation of
hostilities procedures, interpretation of agreements, and their execu-
tion. This did not apply, however, to the Committee of Three, since
General Marshall thought that the United States Government should
not bear the heavy responsibility through his actions in regard to mat-
ters of great importance beyond the interpretation of agreements.

It was difficult to predict the rate of progress and eventual outcome
because of the effect of heavy sporadic fighting, the carelessly expressed
desire of some important Government leaders to settle issues by force,
unfortunate propaganda, and mutual suspicion and distrust

162

U. S. RELATIONS WITH CHINA

On June 24, the Committee of Three reached agreement on a docu-
ment entitled “Stipulations for the Resolution of Certain Disagree-
ments among the Field and Communication Teams, and Executive
Headquarters in Changchun and Peiping.’ 5 15 Under this agreement
certain authority was granted to American officers on teams and at the
Executive Headquarters which was expected to facilitate greatly con-
trol of the situation in areas of hostilities in the future. The most
difficult problem was that of redisposition and reduction of troops
in Manchuria and North and Central China. The Manchurian phase
then seemed to be the least difficult to compose.

CESSATION OF HOSTILITIES IN MANCHURIA

By June 26 an agreement had been reached in the Committee of
Three for the cessation of hostilities in Manchuria, entitled “Direc-
tive for the Termination of Hostilities in Manchuria.” 16 This Di-
rective provided for the application to Manchuria of the cessation of
hostilities agreement of January 10, except as modified in the Directive
or later by the Committee of Three; for the separation from contact
of troops in close or hostile contact; for the readjustment of troops
on the basis of the situation believed to have existed at noon of June
7, 1946; for the cessation of all tactical movements; for the punish-
ment of commanders who failed to carry out the terms of the Directive ;
and for the submission by both sides to the Advance Section of the
Executive Headquarters, within 15 days of the effective date of the
Directive, of lists of all units, strengths and locations in Manchuria.

Agreement on this document marked the settlement of the second
of the three major issues to be decided during the 15-day truce period,
which had now been extended to June 30. It was understood, how-
ever, that agreements on individual issues would not be operative unless
agreement on all major issues was reached in accordance with a stipu-
lation to that effect by the Generalissimo.

REVISION OF THE MILITARY REORGANIZATION AGREEMENT AND
RELATED POLITICAL PROBLEMS

When the discussions revealed the impossibility of reaching agree-
ment for revision of the basic military reorganization agreement of
February 25 prior to the expiration of the extended truce period, nego-
tiations were centered on a preliminary agreement covering only the
principal issues, with the understanding that formal revision would
be negotiated after the completion of the preliminary document.

“ See annex 78.

18 See annex 79.

THE MISSION OF GENERAL GEORGE C. MARSHALL

163

The question of troop dispositions was complicated by the fact that
little demobilization had taken place in North China. The National
Government had confined its demobilization to South and West China
and further demobilization would be largely confined to North China
and Manchuria. This National Government demobilization had been
carried out by reducing divisions which lacked full strength to
brigades, the officer personnel of divisions headquarters and head-
quarters troops having been demobilized. The real point was that
under the present Government proposals very heavy troop demobili-
zation on both sides would be involved between July 1, 1946, and
January 1, 1947.

On June 21, General Chou En-lai had stated that the Chinese
Communist Party proposed that: (1) the Committee of Three should
immediately stop the fighting in Manchuria and China proper and a
new order for the termination of hostilities should be issued with the
additional stipulation that American members of field teams should
have the power to execute this order and to decide upon investigations
to be made by the teams; (2) after the cessation of fighting, the
Committee of Three should work out a plan for the restoration of
communications and the Chinese Communists pledged that the repair
of railways would have first priority; (3) after the cessation of hos-
tilities, the Committee should work out arrangements for the re-
organization and demobilization of armies in all China, including
Manchuria, and the staffs of both parties under the leadership of the
American staff should work out a plan for the Committee of Three’s
approval; and (4) a second session of the Committee of Three should
be convened to discuss the reorganization of the Government, the
protection of the people’s rights and a solution of the people’s liveli-
hood, and local governments should be reorganized and elections held.
General Chou expressed the belief that the Generalissimo was most
concerned over the problems of army reorganization, integration, and
training and pointed out that the Generalissimo presented demands in
connection with these problems which caused concern to the Chinese
Communist Party because if the Chinese Communist Party accepted
these demands there would still be no assurances on the many other
problems which had not been discussed. General Chou considered
this the crucial point at issue. He suggested, therefore, that during
the period of army reorganization the Communist troops be reor-
ganized in Communist areas and Government troops in Government
territory and that training be carried out by American officers, who,
he said, were trusted by both sides, the two forces to be brought
together and integrated after this interim period.

164

U. S. RELATIONS WITH CHINA

General Marshall pointed out to General Chou that the Generalis-
simo had stated very clearly, in his announcement of the truce
period on June 6, that a basis should be established for carrying
out without further delay the agreement of February 25 for the
demobilization, reorganization and integration of Chinese armies
and that the Generalissimo had this in mind when he presented his
proposals. General Marshall emphasized that there must be a definite
understanding of Chinese Communist demands regarding the re-
distribution of troops in North China and that this should have been
decided upon in March and April, when the Chinese Communists
were to have submitted a list of their troops for demobilization. He
continued that the National Government had submitted such lists
but the Communist Party had not done so. In the absence of these
lists, the staffs had been unable to draw up a plan for troop redistribu-
tion in North China.

After learning of the decision of the Generalissimo to extend the
truce period, General Chou En-lai agreed to include the questions
of redistribution of troops in North and Central China in the agenda
for discussion since this problem was the greatest gap between the
two parties. In conversations on this subject, General Marshall
pointed out that when General Chou referred to the attitude of
Government military commanders in Manchuria, he should remember
General Marshall’s statements about the Chinese Communist generals
in Manchuria at the time of their occupation of Changchun, and
that he should also remember that he himself had frequently used
the expression “conditions have changed” in justifying some pro-
posal, just as this expression was now being used by the National
Government in presenting its new stipulations.

On June 26 General Marshall informed General Chou that the
Government, pursuant to the Communist Party demand, was willing
to agree to a revision of troop strengths in Manchuria to allow the
Communists to have 3 divisions as against the Government’s 15 divi-
sions but would not agree to 5 Communist divisions.

General Chou said that the Chinese Communist Party’s difficulty
was that, while it was entering into agreements on military matters,
it did not know what the Government attitude would be later in re-
gard to political questions. He then explained the views of the
Chinese Communist Party as follows :

Army units would have no connection with civil administration,
and after the reorganization of the Central Government and local
governments the Communist armies would be assembled in areas under
Communist control and Government armies in areas under its control.
The army would be separated from civil administration through the

THE MISSION OF GENERAL GEORGE C. MARSHALL 165

establishment of local self-government and elections. The Govern-
ment view that political administration should be adjusted accord-
ing to the identity of the troops in control of a particular area was a
violation of the principle of subordination of the army to civil ad-
ministration. Under the Government proposals, Government troops
would in many cases move into Communist areas and change the
civil administrations. The movement of Government armies into
Communist-held areas for the purpose of demobilization would mean
occupation of Communist territory through negotiation as a substitute
for occupation by force. This procedure was incompatible with the
PCC resolutions on this subject and with the general agreements. The
Communists were willing to withdraw from some areas in order to
erase Government fear of a Communist threat, but such areas should
be left ungarrisoned. Both Jehol and Shantung Provinces were
largely under Communist control and it was more logical to expect
the Government to evacuate these provinces than to demand that the
Communists do so.

On June 27 the Generalissimo told General Marshall that political
adjustments were at this time difficult, if not impossible, unless mili-
tary readjustments were effected as a means of avoiding clashes, and
presented specific proposals for such readjustments: The Chinese
Communist Party should, within ten days, evacuate north Kiangsu
Province, the Tsinan-Tsingtao Bailway, Chengte and Kupeikou, An-
tung Province, and Harbin, these places to be occupied by Government
troops within one month; the Communists should withdraw in one
month from other places to be evacuated, but the entry of Government
troops might be delayed for two or three months ; and as a compromise
measure, Communist officials in Hsin Heilungchiang, Hsingan, and
Nenchiang Provinces in Manchuria, and Chahar Province, might be
accepted by the Government as a temporary arrangement which would
receive consideration at the time of political reorganization.

In commenting upon the Generalissimo’s terms, General Chou En-lai
expressed the following views: Garrison troops must not interfere
with the local administration in areas where they were stationed.
While the Chinese Communist Party was willing to consider a read-
justment regarding Harbin and the detailed problems involved in
stationing Government and Communist troops in specified areas, it
was not in a position to accept the Government claim to the Tsinan-
Tsingtao Railway, Chengte, Kupeikou, and the other places. How-
ever, if the Government felt that the Communist forces along the rail
line in north Kiangsu and Shantung constituted a menace to the Gov-
ernment, the Communists were willing to reduce their forces in such
areas or withdraw them altogether, but the Government troops should

166

U. S. RELATIONS WITH CHINA

not enter Communist areas. The Communists were willing to garrison
north Kiangsu with a small force by reducing the number of troops
provided for in the military reorganization agreement of February 25.
They would withdraw their forces from the Tsinan-Tsingtao Railway
if the Government would agree to garrison only Tsinan, Weihsien, and
Tsingtao. All Communist troops would be withdrawn from the
Tsaochuang coal mines, leaving no garrison troops and freeing the
railway line for operation in connection with the coal mines, the latter
to be controlled by a committee established for that purpose. These
withdrawals should, however, in no way prejudice the local admin-
istrations established by the Communists in those areas.

Subsequent conversations on the subject of troop dispositions indi-
cated that the Government was adamant regarding its demand for the
withdrawal of Communist forces from Chengte and for the stationing
at Yenki of the Communist forces in eastern Manchuria and was
insistent on having sizable Government garrison troops in Harbin.
The Communist Party was equally adamant that areas to be evacuated
by the Communists during the period of army reorganization should
not be occupied by Government forces.

GENERAL MARSHALL’S DRAFT AGREEMENT ON THE ARMY REOR-
GANIZATION PLAN

After these discussions General Marshall drew up a draft pro-
posal entitled “Preliminary Agreement to Govern the Amendment
and Execution of the Army Reorganization Plan of February 25,
1946” 17 as a basis of discussion by the two Chinese sides with the
hope that agreement might be reached on this final document prior
to the expiration of the extended truce period on noon of June 30. As
stated in the document, it established conditions for the purpose of
committing the National Government and the Chinese Communist
Party to certain understandings in order to facilitate the preparation
and acceptance of the formal documents required and to permit the
immediate issuance of instructions for the final termination of hos-
tilities.

The chief points of this document were :

1. Provision for the specific disposition of Government and Commu-
nist troops, by definite localities, in Manchuria and China proper.

2. No change in 5-to-l ratio of troop strengths.

3. The previously established period of 12 months for the assign-
ment of troops to specified localities to be altered to 6 months.

4. The Executive Headquarters to determine immediately localities
occupied by Government and Communist forces in China proper since

17 See annex 80.

THE MISSION OF GENERAL GEORGE C. MARSHALL 167

January 13, 1946, and troops involved to evacuate such areas within
20 days, unless specifically directed otherwise.

5. The Executive Headquarters to determine immediate localities
occupied by Government and Communist forces in Manchuria after
noon of June 7, 1946, and troops involved to evacuate such areas
within 10 days unless specifically directed otherwise.

6. The Communist Party to agree to a Government garrison in
Harbin of 5,000 men.

7. The Communist Party to concentrate its troops in specified lo-
calities, Government troops not to move into areas vacated in China
proper and existing local governments and Peace Preservation Corps
for maintenance of local security to be continued.

An annex to this document specified areas in which Communist
troops were not to be garrisoned or concentrated, leaving for discussion
the time period within which these troops were to be withdrawn.

In commenting on this draft proposal, the Generalissimo expressed
unwillingness to confine paragraph 5 to Manchuria only. Regarding
paragraph 6, which dealt with the status of Harbin, he agreed to
appoint a civilian mayor and to name a person acceptable to the
Communist Party. In regard to paragraph 7 he first expressed
complete disapproval and his final attitude was not clearly indicated.
He agreed to Communist local governments, but could not accept
such an arrangement in Kiangsu Province because of the numerous
refugees, who, he said, would be mistreated by the existing local
governments. He accepted the idea of Peace Preservation Corps on
the basis of strengths similar to those of local security troops in a
hsien. The Generalissimo would not accept partial occupation by
the Government of north Kiangsu but insisted that the Communist
evacuation should be carried out as far north as Huaian within 6
weeks and, within 3 to 6 months, north of the Lunghai Railway. He
also stipulated that the Communist evacuation of the Tsinan-Tsingtao
Railway should include the coal mines along that line, particularly
Poshan (on a spur running south from Changtien) . He was unbending
in regard to the Communist evacuation of Chengte and said that the
Communists should evacuate areas in Jehol Province south of the
latitude of Chengte within 1 month and the city itself within 3 months.
He stipulated that Antung Province should be evacuated within 1
month and concluded that a paragraph should be added to the document
requiring the completion of amendments to the military reorganization
of February 25 within 10 days. In regard to the Manchuria Annex, 18
which had been presented to General Chou En-lai on June 17 with
National Government approval as an annex to the amendment of the

18 See annex 81.

168

U. S. RELATIONS WITH CHINA

agreement of February 25, the Generalissimo stated that the entire
demobilization and integration program in Manchuria should be
completed before November 1, 1946, the original document having
provided for its completion by January 1, 1947.

On June 29 General Chou En-lai commented as follows to General
Marshall on this document and the reservations of the Generalissimo
to the document: The Chinese Communist Party could not agree to
the Generalissimo’s desire to make an exception of north Kiangsu,
although it would be willing to station only minimum forces in that
area. Nor was the Communist Party in a position to accept the time
limits desired by the Generalissimo because it was not sufficiently
informed of actual conditions to know how much time would be
required to effect the concentration of Communist troops in the areas
indicated. He suggested, therefore, a period of 1 to 3 months — in
some cases it would require the minimum and in others more.

As Shantung Province was almost entirely under Communist occu-
pation, the Communists should have some cities on the Tientsin-
Pukow line if they withdrew entirely from the Tsinan-Tsingtao Rail-
way. Although the Communists had no intention of stationing troops
at the coal mines along the Tsinan-Tsingtao Railway, the stipulation
that they should give up all these coal mines was not acceptable in
principle. Further concessions regarding Chengte were impossible.
The Communists had made many concessions to the Government
without presenting any demands, except the proposal for an increase
of a few divisions in Manchuria, and he was asking Yenan for author-
ization to withdraw that proposal. Since he had previously thought
that the National Government’s demand regarding Antung referred
to the city rather than the Province, he would have to refer this ques-
tion to his colleagues in Manchuria before giving a reply.

After further discussion, General Chou said that he was prepared to
consider any formula except that for civil administration involving
the withdrawal of the Communist forces from north Kiangsu and
Government occupation of that region. He continued that the main
text of the document was almost entirely acceptable to the Communist
Party except for one or two minor points.

Thus the only important issue on which agreement had not been
reached at this time was the question of the status of the local govern-
ments in the areas from which the Chinese Communist forces would be
withdrawn. The settlement of this issue would virtually have assured
an agreement on the preliminary document for the amendment of the
military reorganization plan, which, in turn, would have led to the
signing of all the documents discussed during the June truce periods,

THE MISSION OF GENERAL GEORGE C. MARSHALL 169

the Generalissimo having stipulated that all the documents on which
agreement should be reached be signed simultaneously.

On the following day the Generalissimo indicated that he was will-
ing to compromise somewhat in the matter of Chengte but insisted that
the evacuation of Kiangsu by the Communists to the north of the
Lunghai Railway be completed within one month. General Marshall
pointed out that it would be impossible logistically to evacuate to the
north of the Lunghai line in one month and that the most serious
factor was the Communist insistence on the continuation of the local
administrations and a Peace Preservation Corps. He then suggested
that a compromise solution be found on the basis of the continuation
of the local governments, including the establishment of some specially
selected group to arrange an agreement regarding a modification of
these governments and the matter of the Peace Preservation Corps.

General Marshall pointed out to the Generalissimo that statements
issued by his military leaders indicated that the Government was
washing its hands of any democratic procedure and was pursuing a
dictatorial policy of military force. He further informed the Gen-
eralissimo that comparison of the army dictatorship in J apan, which
led to the destruction of that nation, with the present procedure of the
Chinese military leaders would be inevitable. General Marshall in-
formed the Generalissimo that in his opinion an extension of the exist-
ing form of partial truce would probably result in violent military
ruptures due to the tense and explosive situation, the bitterness of the
commanders in the field, and the strong desire of Government military
leaders to settle matters by force, for which the National Government
plans were complete and fairly well known to the Communist Party.

The Generalissimo finally announced that he had already issued
instructions continuing in effect his orders against aggressive action
by his troops. On J une 30, the Kuomintang Minister of Information
publicly announced that, while the truce period had expired at noon
on J une 30 and although no satisfactory agreement had been reached
between the two parties, the Government had requested General
Marshall to continue mediation with a view to reaching a peaceful
settlement and that the Government would not initiate any attacks
against Communist forces but would order its troops to remain on
the defensive and await the settlement of pending issues.

On July 1 an announcement was made that the Generalissimo
had issued orders continuing the prohibition against aggressive action
by his armies. 19 General Chou En-lai subsequently furnished Gen-

19 See annex 82.

170

TJ. S. RELATIONS WITH CHINA

eral Marshall a copy of a similar order issued on July 1 by the Chinese
Communist Party leaders. 20

DISINTEGRATION OF THE TRUCE ARRANGEMENT

The situation was further complicated by the renewed public ex-
pression by several National Government leaders of a desire to settle
the issue by force and by mass meetings in Shanghai carefully organ-
ized to stir up anti-American feeling, related in particular to the
then current Congressional consideration of lend-lease matters.

The Chinese Communists professed to regard measures for aid to
China and official statements in Washington as proving their con-
tention that American economic and military support to the Chinese
Government would continue to be given irrespective of whether the
National Government offered the Communists a fair and reasonable
basis for settlement of military and political differences. The Com-
munists maintained that new legislation intended to aid China which
was then under consideration in the United States Congress 21 was
reinforcing the National Government’s tendency to deal with the
Communists by force and was thus contributing to all-out civil war.
At the same time some reactionary Kuomintang elements in inner
Government circles were utilizing American measures as a basis for
pressing the Generalissimo to push forward with a campaign of
extermination against the Communists. Yet these and other Kuomin-
tang extremists appeared to be joining in anti-American agitation
on the grounds that American economic pressure was causing Ameri-
can imports to displace Chinese products, bankrupt Chinese indus-
trialists and prevent Chinese recovery. These Kuomintang groups
were also antagonistic to the restraint exercised by General Marshall
and his assistants on the National Government with regard to an
anti-Communist military campaign and were even using the Com-
munist line against American intervention in pursuance of their aim
to free the National Government from any American impediment to
drastic anti-Communist action. The agitation and propaganda re-
sulting from the activity of the different factions was being mani-
fested in mass demonstrations, press campaigns and mob actions.
One such incident involved a Shanghai peace delegation, consisting
of educators, businessmen, students, and labor representatives and
including therein representatives of women’s organizations, which

20 See annex 83.

21 Under his wartime powers, the President had directed the establishment of
a small military advisory group in China. The proposed legislation would have
provided legislative authority for such a group and the military assistance
under the new legislation would have been carried out in accordance with the
military reorganization agreement of Feb. 25, 1946. See chapter VII.

THE MISSION OF GENERAL GEORGE C. MARSHALL 171

proceeded to Nanking on June 24 for the publicly stated purpose of
petitioning the Government to avoid civil war. This peace delega-
tion was met at the railway station and restrained from leaving by
an organized group of Kuomintang secret police, who confined the
delegates in a room and in the course of a disturbance lasting several
hours mauled and beat the delegates so severely that they were
hospitalized. Government gendarmes who were present at the be-
ginning of the incident failed to intervene and soon disappeared
and the delegates were not rescued until several hours later.

During July there began a gradual worsening of the military situa-
tion with the spread of hostilities to various points in China proper. 22
The Commissioners of the Executive Headquarters had endeavored
to keep the situation under control by dispatching a message on July
5 to all field teams and to the advance section at Changchun, in which
it was stated that the National Government and the Chinese Commu-
nist Party had announced that the truce was to be continued through-
out China pending the outcome of further negotiations. The Com-
missioners directed all commanders to refrain from aggressive action,
including advances, attacks, and pursuits. The effect of this order
was short-lived, however, and other events occurred which gave indi-
cation of further deterioration in the situation, both militarily and
politically.

On July 7 the Chinese Communist Party issued a manifesto con-
taining a bitter attack on American policy toward China and a protest
against what the Communists termed American military and financial
aid to the National Government, which encouraged the civil- war
policy of the Kuomintang. General Marshall had previously re-
frained from comment on such propaganda attacks, but the coincidence
of events led him to inform General Chou En-lai of the serious blow to
the negotiations such propaganda attacks represented, paralleling as
they did similar propaganda releases from Moscow, and of the im-
possibility of his serving any useful purpose in mediation and in the
termination of hostilities while such attacks continued.

Matters were not helped at this stage by the departure of the Gen-
eralissimo from Nanking for Kuling on July 14, which meant that
negotiations would be greatly handicapped during his absence. There
were increasing signs of the gravity of the situation from a military
standpoint, as hostilities spread in various areas. Each side accused
the other of responsibility for offensive action and movements of
troops. Accompanying the deterioration in the military situation

23 Meetings were held in early July of a special group of National Government
and Chinese Communist representatives to discuss the problem of local govern-
ment but no agreement could be reached.

172

U. S. RELATIONS WITH CHINA

were evidences of efforts on the part of certain Kuomintang officials
to suppress open criticism of the Government. Two well-known
Chinese members of the Democratic League, one of them a prominent
university professor, were assassinated by unknown persons (later
revealed to be members of the Kunming Garrison Headquarters’ secret
police) and there were indications that Kuomintang secret police were
intimidating leading Democratic League members and Chinese lib-
erals in other parts of the country.

Communist activities during this period, in line with the Yenan
propaganda attack on the United States policy toward China, began
to be centered on the United States Marines in China and in mid- July
the first serious incident involving the Communists and United States
Marines occurred — the kidnapping of 7 Marines in east Hopei and
their detention by the Communists for several days before being
released. This was followed at the end of the month by a deliberate
Communist ambush of a United States Marine-escorted motor convoy
bound from Tientsin to Peiping, during which 3 Americans were killed
and 12 wounded. 22a

22a Following the Communist ambush on July 29 of the United States Marine
convoy near Peiping, a fact-finding team of selected personnel from the Execu-
tive Headquarters was formed at the personal request of the Generalissimo and
of General Chou En-lai to determine the responsibility and to submit a report on
the incident. General Marshall delayed the formation of this team until the
United States Marine Corps investigation of the incident had been completed and
the Communists had made a personal request for such a team because of the
anticipated charge by the Communists that the National Government representa-
tive on the investigating team would automatically side with the American
member. General Marshall explained this reason to General Chou En-lai.

The investigation by the fact-finding team from Executive Headquarters en-
countered great, although anticipated, difficulties. The Communists employed
delaying tactics and vicious propaganda. General Marshall finally told General
Chou En-lai that he would not tolerate further delays and misrepresentations.
He characterized Communist tactics regarding the investigation of this incident
in emphatic terms and informed General Chou that if there were further delays
he would withdraw the American representative from the investigating team and
make a public statement of the facts. General Marshall was reluctant to take
such action, however, since it would play directly into the hands of the small group
in the Kuomintang which was blocking his efforts to terminate the fighting, would
virtually end the usefulness of the Executive Headquarters, and might result in
a general military conflagration. When General Chou stated that the reports
received from Communist representatives were completely at variance with those
from the Americans, General Marshall emphasized to him that it was quite im-
possible for the United States Army, Navy or Marine Corps personnel to involve
themselves in deliberate misrepresentation in such an investigation. He further
said that the American investigators had made no attempt, and did not intend,
to conceal facts or bend them to their advantage and that he wished to emphasize
the importance of straightforward action without delay. The testimony of the

THE MISSION OF GENERAL GEORGE C. MARSHALL 173

IV. THE APPOINTMENT OF J. LEIGHTON STUART
AS AMBASSADOR TO CHINA

The deterioration of the situation in China and what appeared to be
the decisive influence of the reactionary political and military group
around the Generalissimo convinced General Marshall of the desir-
ability of obtaining the assistance in the mediation effort of an Amer-
ican of unquestioned character and integrity and with long experience
in China. With this view in mind, General Marshall recommended
the appointment of Dr. J. Leighton Stuart, President of Yenching
University at Peiping, as American Ambassador to China. President
Truman acted upon this recommendation and on July 11, 1946, the
United States Senate confirmed the nomination of Dr. Stuart as
Ambassador to China.

On July 26, shortly after Dr. Stuart’s arrival at Nanking, General
Chou En-lai proposed that an order for the unconditional cessation
of hostilities be issued immediately and that at the same time the
various arrangements worked out during the negotiations in June be
put into effect. He further proposed that National Government and
Communist Party representatives then meet with Dr. Stuart for pre-
liminary discussion of the reorganization of the Government and local
government problems and that any agreement reached be submitted
to the PCC Steering Committee for approval since the reorganization
of the Government required the approval of all parties.

In frank discussions at this time with a high-ranking National
Government official, General Marshall endeavored to impress upon
him the gravity of the situation. He informed him that the principal
loss, in his opinion, was the lowering of the Generalissimo’s prestige
and that this was particularly tragic since the Generalissimo repre-
sented perhaps the greatest asset China had at this time. He con-
tinued that the Generalissimo’s advisers were giving him such nar-
row and prejudiced advice that the situation seemed hopeless and
that comments had been made to him privately by the Generalissimo’s
own associates which they could not make openly. He described the
weakness of the financial and economic structure of the country, which
argued strongly against civil war, and said that, if the Generalissimo
continued in his present attitude toward negotiations, civil war was

two Chinese sides regarding the incident was conflicting and General Marshall
finally instructed the United States personnel of the investigating team to with-
draw and submit their own report. This report was to the effect that a Com-
munist force had ambushed the motor convoy of Executive Headquarters and
Unbra supplies escorted by a United States Marine unit, that it had killed three
Marines and wounded 12 others and that no National Government troops were
present or involved in the incident.

174

U. S. RELATIONS WITH CHINA

inevitable. General Marshall pointed out that while the Generalis-
simo believed that the military situation would develop favorably
during this lull in negotiations, developments might not occur in ac-
cordance with his belief. He said that the Generalissimo’s military
commanders were leading him into an uncontrollable situation and
that when such a situation materialized these same commanders would
be appealing for aid which would not be forthcoming. General Mar-
shall emphasized that the United States would not underwrite a
Chinese civil war.

In later conversations with this same official, General Marshall
emphasized that the tactics being followed by the Government were
such that in its efforts to prevent communism the Government was
creating conditions favorable for a Communist regime. He cited as
an example the existing financial and economic situation which would
be made more serious by continuation of military operations and
added that civil war, accompanied by economic chaos, would provide
fruitful breeding grounds for communism.

Meanwhile, economic developments were providing grave portents
of the rapid deterioration that was to come. The resumption of
military operations was progressively isolating agricultural and
mining areas from urban centers of consumption and export, and re-
quired a steady expansion of the currency in circulation to meet the
Government’s swollen budgetary requirements. These factors com-
bined to stimulate a rapid, although not yet explosive, inflation, the
consequences of which were universal commodity speculation and
hoarding, a low level of exports and emigrant remittances and, in turn,
the steady depletion of the Government’s foreign exchange reserves.

V. ORGANIZATION OF THE STATE COUNCIL

PROPOSAL FOR A FIVE-MAN COMMITTEE

On August 1 Dr. Stuart in a long conference with the Generalissimo
at Killing proposed the organization of a special committee, including
National Government and Communist Party representatives, with Dr.
Stuart as Chairman, for the purpose of reaching an agreement for
the immediate organization of the State Council. 23 In view of the
apparent impossibility of obtaining the Generalissimo’s agreement
to the issuance of an order for the termination of hostilities, General
Marshall and Dr. Stuart considered it advisable to approach the
problem from another angle. It was their belief that if some prog-
ress were made by this committee the Generalissimo would be

For the PCC resolution on the State Council, see annex 64.

THE MISSION OF GENERAL GEORGE C. MARSHALL 175

willing to agree to a cessation of hostilities, which were at this time
increasing in extent throughout North China and were threatening to
spread into Manchuria. The Generalissimo utilized the Communist
attack on the United States Marine convoy as a reason for delaying
decision but agreed to consider the matter. General Marshall and
Dr. Stuart were of the opinion that there was urgent necessity for
creating the State Council, which, in effect, would give a form of genu-
ine legislative action for control or guidance of the Government.

On August 5 the Generalissimo gave his agreement to the formation
of a small informal five-man committee to be composed of Government
and Communist Party representatives, under Dr. Stuart as Chairman,
for the purpose of reaching an agreement for organization of the State
Council. On the following day he stipulated five preliminary con-
ditions which the Communists would have to accept and carry out
within a month to six weeks: (1) The Communist forces in north
Kiangsu should withdraw north of the Lunghai Railway; (2) Com-
munist forces should withdraw from the Tsinan-Tsingtao Railway;
(3) Communist forces should withdraw from Chengte and areas
in Jehol Province south of that city; (4) Communist forces should
withdraw into 2 y 2 provinces in Manchuria (Hsin Heilungchiang, Nen-
chiang, and Hsingan) ; and (5) Communist forces should withdraw
from places in Shansi and Shantung Provinces occupied after June
7. These terms were more exacting than those at the end of June
when the stalemate had been reached.

The Chinese Communist Party replied that the National Govern-
ment made no mention of local government and that the Communist
Party’s refusal to accept Government demands for taking over local
administration in areas to be evacuated by Communist troops, which
had led to the impasse at the end of June, was based on the grounds that
such a procedure was contrary to the PCC resolutions. 24 The Commu-
nist Party was willing to agree to the holding of political and military
discussions simultaneously but would not accept the five Government
conditions as a condition which must be agreed to prior to discussion
of political matters.

THE MARSHALL-STUART STATEMENT OF AUGUST 10, 1946

At this point in the negotiations, on August 10, 1946, General Mar-
shall and Ambassador Stuart issued a joint public statement in an

24 Annex 1 of the PCC resolution entitled “Program for Peaceful National Re-
construction” : “In those recovered areas where the local government is under
dispute the status quo shall be maintained until a settlement is made according
to Articles 6, 7 and 8 of Chapter III on Political Problems in this Program by
the National Government after its reorganization.”

176

U. S. RELATIONS WITH CHINA

effort to bring both sides and the Chinese public to a realization of
the issues and to arouse public pressure for the termination of
hostilities. Pointing out that the fighting threatened to pass out of
control and that the economic situation was most serious, they stated
that both the Government and the Communist leaders wished to put
an end to the fighting but that there was still lack of agreement on
certain issues. The redisposition of troops was one of the issues
mentioned, but General Marshall and the Ambassador informed the
Chinese public that a more fundamental issue concerned the charac-
ter of local governments following such a redisposition . 25

In very frank conversations with the Generalissimo at this time
General Marshall outlined his estimate of the situation as follows:
Events during the weeks following his final talk with the General-
issimo prior to the latter’s departure for Kuling in July corresponded
almost exactly with his predictions at that time. The Generalissimo
had said that he could control the situation in Manchuria and that
fighting in North China would be local and that, if General Marshall
were patient, the Communists would appeal for a settlement and
would be willing to make compromises necessary for such a settle-
ment. Fighting in North China would, however, under present circum-
stances soon be completely out of control. Once it spread to Jehol
Province, Manchuria would be affected, and the result would be a civil
war beyond his or Communist control. This would be a catastrophe in
that it would afford an ideal opportunity for the Communists to ex-
pand and for the U.S.S.R. to support the Chinese Communists, either
openly or secretly. The Government had much to lose and little to gain
from hostilities at this time, which might end in the collapse of the
Government and of the country’s economy. The Generalissimo must
remember that the long lines of communication and the terrain fa-
vored the employment of Communist guerrilla tactics. General Mar-
shall’s objective, beyond that of a unified and rejuvenated China, was
not what some of the Generalissimo’s advisers seemed to think — that
is, to put the Communist Party in control. He opposed the policy
of the Generalissimo and his immediate advisers because he thought
that the procedure of the National Government would probably lead
to Communist control in China ; the chaotic conditions then developing
would not only weaken the Kuomintang but would also afford the
Communists an excellent opportunity to undermine the Government.
Information reaching General Marshall from a wide variety of sources
indicated a serious lowering of Kuomintang prestige, and criticism of
Kuomintang governmental procedure was increasing daily. The most

25 See annex 84.

THE MISSION OF GENERAL GEORGE C. MARSHALL 177

serious consequence of the situation was its profound injury to the
prestige of the Generalissimo, which was perhaps China’s greatest
asset.

GENERALISSIMO CHIANG KAI-SHEK’S POSITION

After frequent conferences the Generalissimo indicated his willing-
ness to make an effort to reach agreement with the Chinese Commu-
nists for the organization of the State Council through the Five-Man
Committee, but he was not willing to agree to a termination of the
fighting until his five conditions had been met. The Generalissimo
informed General Marshall that even this concession was a great one
and involved a military risk on the part of the Government. General
Marshall did not agree with this view and considered that the greater
risk was involved in the continuation of the fighting.

On August 13 the Generalissimo issued a public statement which was
indicative of his attitude. 26 The entire blame for the breakdown in
the negotiations and the economic distress in the country was laid at
the door of the Chinese Communists. He described the Government’s
policy as follows: (1) the ending of the period of political tutelage
and establishment of constitutional government; (2) adherence to the
PCC resolutions; (3) broadening of the basis of the Government by
the inclusion of members of all parties and non-party persons to carry
out the PCC Program of Peaceful National Reconstruction; (4) ad-
herence to the cessation of hostilities agreement of January 10, with
the proviso that the Communists withdraw from areas “where they
threaten peace and obstruct communications”; (5) the use of political
means to settle political differences, but only if the Communists gave
assurance and evidence that they would carry out the various agree-
ments reached; and (6) the protection and security of the people and
their properties and the removal of any threat to peace.

MAJOR FACTORS OF DISAGREEMENT

On August 22 General Chou En-lai expressed his willingness to par-
ticipate in the meetings of the Five-Man Committee to discuss the
organization of the State Council. There were two issues connected
with this question: (1) the allocation of seats on the Council among
the political parties and the non-party group and (2) the veto power
in the Council in connection with the carrying out by the reorganized
Government of the Program for Peaceful National Reconstruction
agreed upon by the PCC and constituting one of the PCC resolutions.

28 See annex 85.

178

U. S. RELATIONS WITH CHINA

The military situation was growing more serious day by day and
there was at this time an immediate threat of an outbreak of fighting
in Jehol Province, northeast of Peiping. The Chinese Communist
Party had issued a general mobilization order, which the Communists
contended was a defensive measure against what they considered to be
the purpose of the National Government to settle issues by military
force. The fact of the matter was that each side took the stand with
General Marshall that the other was provoking the fighting and could
not be trusted to go through with an agreement. The effort of Gen-
eral Marshall and Ambassador Stuart with respect to the State Coun-
cil was another move, on a higher level, to break the stalemate and
make it possible to terminate hostilities.

In late August the Generalissimo gave his formal agreement to the
creation of the Five-Man Committee to pave the way for the formation
of the State Council and also agreed that the conclusions of this group
would be presented to the PCC Steering Committee for approval in
accordance with the PCC resolutions. Shortly thereafter he ap-
pointed the National Government’s two members of the Committee.
At the same time he indicated that he had not in any way moderated
his insistence on the five conditions to be met by the Communists in
order to bring about a cessation of hostilities. In view of these five
conditions General Chou En-lai expressed doubt regarding the pro-
posal for creating the State Council, contending that it would only
serve to give false encouragement to the public since the Generalis-
simo had no intention of facilitating the cessation of hostilities by
moderating his previous terms.

Under these circumstances, General Marshall and Ambassador
Stuart were concentrating on the measures to create the State Council
as at least one definite step toward governmental reorganization that
might exert an influence sufficient to furnish a basis for the termina-
tion of the fighting. The Generalissimo informed General Marshall
that all that was necessary was for the Chinese Communists to stop
fighting and abide by the terms of the cease-fire order of J anuary 10,
although under questioning he admitted that he was not moderating
his five conditions.

In the meantime the National Government continued its offensive
in north Kiangsu, cleared the Communists from the Tsinan-Tsingtao
Railway and captured Chengte, capital of Jehol Province, on August
29. These were all points covered by the five Government conditions.
The Communist forces launched an attack along the Lunghai Railway
between Hsuchow and Chengchou and began their siege of Tatung in
early August.

THE MISSION OF GENERAL GEORGE C. MARSHALL 179

VI. THE TRUMAN-CHIANG MESSAGES OF
AUGUST 1946

PRESIDENT TRUMAN’S MESSAGE OF AUGUST 10

In the meantime, on August 10, 1946, President Truman had for-
warded to the Generalissimo a personal message, in which the Presi-
dent had expressed his concern at the deteriorating situation in China
and at the actions of selfish interests of extremist elements, equally
in the Kuomintang and the Chinese Communist Party. The Presi-
dent described the growing conviction that an attempt was being made
to settle major social issues by resort to force rather than by demo-
cratic procedures. He pointed out that it was still the firm desire
of the American Government and people to assist China to achieve
lasting peace and a stable economy under a truly democratic govern-
ment, but that unless convincing proof were shortly forthcoming that
genuine progress was being made toward a peaceful settlement of
internal Chinese problems, it would be necessary for the President to
redefine and explain the position of the United States to the Ameri-
can people. 27

GENERALISSIMO CHIANG’S REPLY OF AUGUST 28

To this the Generalissimo replied on August 28. 28 The reply placed
the blame for the fighting on the Communists and charged that the
aim of Communist policy was to use armed force to seize political
power, overthrow the Government, and install a totalitarian regime.
He stated that while mistakes had been made by some National Gov-
ernment subordinates they had been minor in scale compared with the
flagrant violations of the Communists and that the National Govern-
ment had dealt sternly with its offenders. The Generalissimo pro-
claimed his policy of broadening the basis of the National Government
by the inclusion of all parties and non-party personnel and said that
success must depend upon the sincerity of the Communists in re-
sponding to the National Government’s appeals.

PRESIDENT TRUMAN’S MESSAGE OF AUGUST 31

In view of the generally unsatisfactory nature of Generalissimo
Chiang Kai-shek’s reply of August 28 to President Truman’s per-
sonal message and the continued deadlock in the negotiations, the
President forwarded a further message to the Generalissimo in which
he emphasized that the prompt end of the threat of civil war in China

27 See annex 86.

” See annex 87.

180

U. S. RELATIONS WITH CHINA

through the establishment of political unity would make it feasible
for the United States to proceed with its plans further to aid China
in the rehabilitation of its industrial and agricultural economy. 29

VII. THE DRIFT TOWARD ALL-OUT STRIFE

COMMUNIST RESENTMENT OF AMERICAN AID TO CHINA

The signing of an agreement between the Chinese and United States
Governments on August 30, 1946, for the sale of United States Govern-
ment surplus property in various islands of the Pacific was the occasion
for the issuance of a statement by the Chinese Communist Party at
Shanghai attacking the United States for extending large-scale mili-
tary aid to the National Government. General Marshall had ex-
plained to General Chou En-lai the background of the negotiations
leading to the signing of this agreement prior to its actual completion
and had explained that the surplus property in question did not
contain combat materiel but consisted of machinery, motor vehicles,
communications equipment, rations, medical supplies and various
other items which would be of considerable value in the rehabilitation
of the Chinese economy. The transaction could not be held in abey-
ance until the two Chinese groups settled internal differences which
had existed over a long period of years. The alternative was to de-
prive China and its people of the opportunity to acquire materials
beneficial to its reconstruction.

In view of continued Chinese Communist propaganda attacks on the
surplus property agreement of August 30, 1946, General Marshall
gave a very detailed explanation of this transaction to the Communist
Party representative. He pointed out that this transaction had been
under discussion since the beginning of 1946 and had almost been
settled at the time of General Marshall’s departure for the United
States in March. During his visit to the United States he had ironed
out most of the difficulties involved and the failure to reach an agree-
ment on this transaction in February had resulted from Chinese
Government efforts to improve the terms. The alternative to com-
pleting an agreement with China for the sale of this surplus property
was the immediate disposal of the property to other governments in
the Far East or dumping it in the ocean, courses of action which
would have deprived China of material of considerable importance
in the economic rehabilitation of the country. General Marshall con-
tinued that Chinese Communist propaganda had imputed to this
transaction every evil purpose possible and that great harm had thus

29

See annex 88.

THE MISSION OF GENERAL GEORGE C. MARSHALL 181

been done. He concluded that while he accepted this propaganda as
inevitable, he was greatly disturbed when a proposal such as that for
the informal Five-Man Committee was being destroyed as a result of
such propaganda. The Chinese Communist Party representatives,
however, continued to be critical of the surplus property agreement on
the grounds that items such as trucks, communications equipment and
army rations and uniforms would be used for civil war purposes and
other items would be sold on the market and the proceeds thereof
expended for military purposes.

With respect to United States military aid programs 30 General
Marshall was being placed in the untenable position of mediating
on the one hand between the two Chinese groups while on the
other the United States Government was continuing to supply arms
and ammunition to one of the two groups, namely, the National
Government. Action was therefore taken in August to suspend
certain portions of these programs which might have a bearing on
the continued prosecution of hostilities in China. Licenses were not
granted for the export to China of combat type items of military
equipment and in late September shipments of combat items from the
Pacific area to China were temporarily suspended. (On October 22,
1946, the suspension was lifted to permit the delivery of civilian type
items for the Chinese Air Force.) This ban was imposed at a time
when the National Government was gradually increasing the tempo
of its military campaign and when its reserves of materiel were ample.
The ban apparently had little effect, since it was not until November,
when the National Government had reached the peak of its military
holdings, that the National Government issued an order for the cessa-
tion of hostilities. By that time the Government’s forces had occupied
most of the areas covered by its demands to the Chinese Communists
in June and during later negotiations and had reached what turned
out to be the highest point of its military position after Y-J Day.

PROBLEMS RELATING TO THE FIVE-MAN COMMITTEE

By September 3 both Chinese groups had named their representa-
tives to the informal Five-Man Committee. Agreement on the com-
position of the Committee did not, however, mean that Committee
meetings were assured. The Chinese Communist Party continued to
insist on the receipt of assurances from the Government that the
latter would issue orders for the cessation of hostilities when agree-
ment should be reached in the Committee.

See chapter VII.

182

U. S. RELATIONS WITH CHINA

In referring to the informal Five-Man Committee General Mar-
shall pointed out to the Chinese Communist Party representative that,
when this proposal was presented to the Generalissimo, the latter
had said that it would not be an effective procedure since the Commu-
nists would immediately introduce other matters which would so com-
plicate the discussions that no progress would be made. General
Marshall had informed the Generalissimo that Dr. Stuart would act
as chairman of the Committee only during discussion of State Council
issues and that if other issues were brought up Dr. Stuart would
withdraw from the discussions. General Marshall further explained
to the Communist Party representative that he had exerted every
effort and every argument to end the impasse and obtain a cessation
of hostilities and that he had ignored the attacks on him personally,
both those made publicly by the Communists and those made by
individuals within the Government who were opposed to almost
everything he had been trying to accomplish.

The Chinese Communist Party attitude toward the proposal for the
informal Five-Man Committee was that it would agree to participate
in the discussions of the Committee upon the receipt of a guarantee
that cease-fire arrangements would be made and that the Government
would drop its five conditions after the Committee reached a formula
for Government reorganization. The Communist representative
also stated that the Communist Party would not name its mem-
bers to the State Council while fighting continued because the Gov-
ernment apparently wished to have the State Council decide upon
cease-fire arrangements. He pointed out that if the matter were left
to the State Council, the Kuomintang, together with the Youth Party,
would have a majority of the votes and any cease-fire arrangements
would thus be on Kuomintang terms. The Communists desired that
the Committee of Three handle such arrangements. In brief, the
Communist Party position was that it would participate in the discus-
sions in the Five-Man Committee provided that, when a basis of agree-
ment should be reached, a cease-fire order would be issued. It desired
that an unconditional cease-fire order be issued or that the Committee
of Three meet immediately to discuss this question.

Following several days of conferences at Killing between the Gen-
eralissimo and General Marshall, the former indicated that certain
terms were acceptable to him. He agreed that the settlement of the
military terms for the cessation of hostilities would be made by the
Committee of Three and not by the State Council provided the Com-
munist Party agreed to have the Committee of Three take action on
the various issues discussed by that Committee in June. These were
the questions of restoration of communications, the terms for the

THE MISSION OF GENERAL GEORGE C. MARSHALL 183

termination of hostilities and the redistribution of troops in Man-
churia and the military reorganization of the armed forces which
would stipulate the places where Communist troops were to be sta-
tioned. The Generalissimo had yielded on one important point by
agreeing that the question of local government could be referred to the
State Council after its establishment. He also expressed his willing-
ness to have the Constitutional Reviewing Committee resume its work
when the Five-Man Committee had reached agreement and its con-
clusions had been approved by the PCC Steering Committee but said
that, prior to the issuance of a cease-fire order, the Communist Party
must name its representatives to the National Assembly. General
Marshall had gained the impression from statements by the Gen-
eralissimo that he considered that practically all the points covered by
his five conditions would be automatically taken care of by his insist-
ence on continued Government military occupation of places recently
occupied by its troops. It was also the impression of General Marshall
that reorganization of the Executive Yuan would take place after the
convening of the National Assembly.

When these terms were transmitted to General Chou En-lai, he
expressed the view that, except for the proposal for the Five-Man
Committee to discuss the reorganization of the State Council, the
entire procedure in connection with political considerations outlined
by the Generalissimo was contrary to the PCC resolutions. The Com-
munist Party asked, therefore, that the Committee of Three be con-
vened immediately to find some basis for the issuance of a cease-fire
order.

General Marshall considered that the Communist Party proposal
meant a return to the impasse at the end of June which Dr. Stuart
and he had been endeavoring to break through by the proposal for the
reorganization of the State Council. He pointed out that unless the
Committee of Three meeting were paralleled or preceded by efforts to
reorganize the State Council, the situation had merely returned to
the previous deadlock. It was General Marshall’s position that the
stand taken by the Chinese Communist Party was harmful to it, as
the Government probably wanted all the time possible for military
operations and time was thus to its advantage.

During this period the Communist representatives continued to
insist on two points: (1) assurances from the Government that the
Communists would be able to control sufficient votes in the State
Council to veto any revision of the PCC resolutions, and (2) the early
issuance of a cease-fire order.

The Generalissimo indicated at this time that he would not agree to
a meeting of the Committee of Three until the Five-Man Committee

184

U. S. RELATIONS WITH CHINA

should meet and give indication of reaching an agreement for the
organization of the State Council and all that it was necessary for
the Communists to do in connection with the National Assembly was
to submit a list of their delegates. The Generalissimo also indicated
that he would not agree to informal discussions of the State Council
issues by Government members of the Five-Man Committee prior to
the formal meetings of the Committee, but that he would agree spe-
cifically that the two questions of the allocation of seats in the Council
and the veto power would be the subjects for that Committee to discuss
and settle.

On September 16 General Chou En-lai departed from Nanking for
Shanghai. Prior to his departure he forwarded to General Marshall
three memoranda. The first memorandum outlined United States aid
to the Chinese Government, described it as contributory to civil war,
protested the sale of United States Government surplus property to
the Chinese Government, and demanded that the United States Gov-
ernment freeze all supplies and shipping covered by the surplus prop-
erty agreement pending a settlement in China and the restoration of
peace and unity and establishment of a coalition government. The
second memorandum requested the convening of the Committee of
Three to discuss the issuance of an order for the cessation of hostili-
ties. 31 The third memorandum announced the departure of General
Chou for Shanghai and said that he would return as soon as a meeting
of the Committee of Three should be convened. 32

The Generalissimo, when informed of the situation, said that he
would not agree to Government participation in the Committee of
Three until the Five-Man Committee had been convened and had
given some indication of reaching an agreement. He did agree, how-
ever, to a compromise proposal presented by General Marshall regard-
ing the allocation of seats in the State Council, which would have given
the Communists within one vote of a veto power to block revision of the
PCC resolutions, on the assumption that there was certain to be at
least one liberal-minded, independent councillor who would vote
independently.

NEITHER SIDE YIELDS MEASURABLY

During this period of negotiations, there had been little change in
the position of the Chinese Communists. They continued to insist
that a solution for the cessation of hostilities issue was a prerequisite
to their participation in the Five-Man Committee discussions looking
toward the organization of the State Council, although they did finally

81 See annex 89.

“ See annex 90.

THE MISSION OF GENERAL GEORGE C. MARSHALL 185

agree to enter into Committee discussions provided the Committee of
Three should meet simultaneously to discuss the cessation of hostili-
ties ; they demanded that the Generalissimo’s five conditions be dropped
after a basis for the State Council should have been reached in
the Five-Man Committee ; they stated their refusal to name their mem-
bers of the State Council, in the event of agreement on a formula for
the Council, until hostilities should cease; and they indicated their
desire that the PCC Steering Committee should discuss the reorgan-
ization of the Executive Yuan. The greatest concern of the Com-
munists during this period was for the cessation of hostilities and for
assurances that the PCC resolutions would not be modified ; to this
latter end they insisted on some formula in the veto power arrange-
ment which would ensure that the PCC resolutions would not be
changed, as they apparently felt that their safety lay in the retention
of the decisions of the PCC.

The Government position during this period was less fixed: The
Government first placed the blame on the Communists for the initia-
tion of the fighting and thus insisted that there was no need to issue
a cease-fire order ; the Government stated at the beginning of Septem-
ber that it would not abandon the Generalissimo’s five conditions;
and Government spokesmen indicated that all issues regarding a truce
and the settlements in various areas were to be discussed in the State
Council. Subsequently, however, after an earlier refusal to consider
the convening of the Committee of Three, the Generalissimo agreed
to permit that Committee to settle the cessation of hostilities issue
provided the Communists would carry out certain tentative agree-
ments reached during June and, in effect, abandoned the five con-
ditions through agreement to permit the Kiangsu local government
problem to be settled by the State Council. Government military ad-
vances had in any case more or less made the carrying out of most
of these five conditions a fait accompli. The Generalissimo also agreed
to the summoning of the Constitutional Reviewing Committee as soon
as the Five-Man Committee should have reached an agreement and
this agreement should have been confirmed by the PCC Steering Com-
mittee, thus providing some assurance to the Communists of con-
formity with PCC procedures. He had, however, posed an additional
condition by stipulating that he would not agree to the cessation
of hostilities until the Communists should have named their
delegates to the National Assembly, a procedure which the Com-
munists characterized as not in conformity with the PCC resolutions ;
and he had indicated that the Executive Yuan would not be re-
organized until the National Assembly should have convened, al-
though the PCC resolutions envisaged the reorganization of the Execu-

186

U. S. RELATIONS WITH CHINA

live Yuan prior to that time. The Generalissimo also indicated that
he contemplated continued Government military occupation of the
places occupied in its military campaign. Toward the end of this
period of negotiations, the Generalissimo agreed to the convening of
the Committee of Three when the Five-Man Committee should have
given evidence of having reached agreement on the State Council,
but he would not agree to informal meetings of the Five-Man Com-
mittee prior to its formal meetings.

The positions of the two parties thus continued irreconcilable.
General Marshall and Dr. Stuart had endeavored to break the dead-
lock through the proposal for the Five-Man Committee as a step lead-
ing toward the cessation of hostilities. They had exerted strong
pressure on the Generalissimo in an effort to obtain his concurrence
to this proposal only to meet with Communist refusal to participate
in the meetings of the Committee. Propaganda campaigns, as usual,
played a part in wrecking their efforts, as they led to confusion and
misunderstandings. The most bitter of these campaigns was that di-
rected by the Communist Party against the American Government
and the surplus-property transaction. Communist distrust and Com-
munist practices of distortion and disregard of the truth imputed to
this transaction an evil purpose intended to further civil war in China,
which was utterly contrary to the facts. The Generalissimo had frank-
ly told General Marshall that the conclusion of an agreement for the
termination of hostilities was his final trump card in forcing the
Communist Party to name its delegates to the National Assembly.
Since the Communist Party considered this as a sixth condition to be
added to the previously announced five conditions, they were pressing
for the more immediate issue, as they saw it, of terminating the
fighting.

On September 19, in response to an oral request from the Com-
munist Party representative at Nanking, General Marshall communi-
cated to General Chou En-lai at Shanghai the National Government
reaction to General Chou’s request for a meeting of the Committee of
Three. 33 In a further memorandum from Shanghai, General Chou
again repeated his request for a meeting of the Committee of Three
and indicated that unless the meeting were convened he would be
compelled to make public all the important documents in the negotia-
tions since the June truce period. 34 General Marshall made it very
clear to the Communist Party representative at Nanking at this time
that in view of the vicious Communist propaganda attacks directed
against his personal integrity and honesty of purpose, which were

" See annex 91.

“ See annex 92.

THE MISSION OF GENERAL GEORGE C. MARSHALL 187

being paralleled by repeated private requests from the Communists
that he continue his mediation efforts, he wished to emphasize that such
a procedure would no longer be tolerated — if the Communists doubted
his impartiality as a mediator, they needed only to notify him accord-
ingly and he would immediately withdraw from the negotiations.

In discussions of the situation with high-ranking National Govern-
ment representatives at this time, General Marshall impressed upon
them the delicacy of the situation and the possibility that, if the
situation continued to deteriorate, the Communists would be driven
to seek and be dependent upon outside support, such as Russian aid,
which would make the task of peaceful settlement much more difficult.

Since the Generalissimo was expected to return to Nanking from
Ruling, where he had been since mid- July, General Marshall and
Dr. Stuart addressed a joint letter to General Chou En-lai at Shanghai
asking that he also return to Nanking in order that further efforts
could be made to achieve a peaceful arrangement. 35 General Chou
maintained in his reply his previous stand that he would prefer to
await the convening of the Committee of Three. 36

Upon the return of the Generalissimo to Nanking and pursuant to
his request for advice regarding the issuance of a public statement,
General Marshall suggested on September 27 that the Government
propose the convening of the Five-Man Committee and the Committee
of Three with the understanding that the agreements tentatively
reached in June be carried out, that the Committee of Three decide
the problem of the military reorganization and integration agreement,
that the PCC Steering Committee confirm whatever conclusions were
reached by the Five-Man Committee, that all local government issues
be settled by the State Council and that concurrently with the cessation
of hostilities the Communist Party publish the list of its delegates to
the National Assembly. General Marshall set forth these procedures
in a draft statement for approval by the Generalissimo and possible
use. 37 General Marshall suggested that these arrangements be
accompanied by Government action to secure the immediate cessation
of hostilities.

It was the view of General Marshall that, if the Communists
expressed agreement to the general terms and procedures outlined,
an order for the cessation of hostilities should be immediately issued
and the Five-Man Committee and the Committee of Three should
meet at once. The Generalissimo subsequently informed General
Marshall that after study of this suggestion he had come to the

“ See annex 93.

86 See annex 94.

87 See annex 95.

188

U. S. RELATIONS WITH CHINA

conclusion that the several agreements indicated should be completed
prior to the cessation of hostilities — in brief, the Committee of Three
would have to reach complete agreement on the redisposition of troops
for demobilization and integration of the armies and the Five-Man
Committee would also have to reach an agreement prior to the issuance
of a cease-fire order. It was the opinion of General Marshall that
such a procedure would completely vitiate the entire purpose of his
suggestion. The Generalissimo later informed General Marshall that
he had decided not to release any public statement at that time.

NATIONAL GOVERNMENT MILITARY ACTIVITIES

During this period the National Government began an advance
against Kalgan, an important Communist-held city northwest of
Peiping. The Chinese Communists, who had been beseiging Tatung
(north Shansi) since early August, announced the formal lifting of
the siege of that city in order to meet the Government charge that
Kalgan was being attacked because the Communists were threatening
Tatung. On September 30 the Kuomintang Central News Agency
announced that Government forces had begun operations for the
purpose of capturing Kalgan. On the same day the Communist
Party announced publicly its refusal to name its delegates to the
National Assembly unless certain PCC procedures were observed.

It was against this background that General Chou En-lai addressed
a memorandum to General Marshall on September 30 pointing to the
Government attack on Kalgan, one of the political and military centers
of the Communist Party, and stating that if the National Government
did not cease military operations against Kalgan the Communist Party
would be compelled to presume that the Government was giving public
indication of a “total national split” and its abandonment of a peaceful
settlement. 38 The Communist Party representatives stated orally that
the cessation of the Government drive against Kalgan was a
prerequisite to Communist participation in simultaneous meetings of
the Committee of Three and the Five-Man Committee.

FURTHER DETERIORATION IN THE NEGOTIATIONS

On October 1, 1946, in a conference with Chinese Communist Party
representatives at Nanking, General Marshall made it clear to them
that he was in agreement with neither the Communist Party’s course
of action nor that of the National Government. He said that the
situation had almost reached the point where he would not continue
in the position of a mediator and that he could no longer continue to
be a middleman in a prolonged series of accusations and counter-
s'

See annex 96.

THE MISSION OF GENERAL GEORGE C. MARSHALL 189

accusations, of proposals and counterproposals. General Marshall
stated that he had to give first consideration to the position of the
Government that he represented. He pointed out that while he was
struggling with the Chinese Government in an effort to have terms
proposed which would have a fair chance of acceptance by the Chinese
Communist Party, the latter had come forward with an announcement
of refusal to name its delegates to the National Assembly. While he
was struggling with the Chinese Communists in an effort to reach a
basis for agreement, the Government had publicly announced its attack
on Kalgan. This type of procedure had continued week after week and
month after month. He said that he wished to emphasize that the
procedure followed by the Communists was inevitably productive of
long delay during which military operations were continuing. He
concluded, however, that he was willing to discuss General Chou’s
memorandum of September 30 with the Government and would do
his best to prevail upon the Government to take action which would
increase the possibility of peaceful settlement.

General Marshall decided at this time that he would not carry oral
messages to the Chinese Communists but would transmit only written
communications from the Government.

He felt that the United States Government could not continue
to be a third party to the existing procedure under which the Govern-
ment had been proceeding with its “local operations” for 3 months.
He thought it apparent that the National Government’s campaign
against Kalgan could be justified only on the basis of a policy of
force. He felt that he could not put himself in the position of mediat-
ing during a continued series of military campaigns and that he must
have positive assurances from the National Government that there
was a reasonable basis for compromise which offered possibility of
success.

GENERAL MARSHALL CONSIDERS WITHDRAWING

In view of the existing situation, General Marshall addressed a
memorandum to the Generalissimo on October 1, in which, after stat-
ing that he was not in agreement with the present course of the Gov-
ernment or of the Communist Party, he concluded :

“I wish merely to state that unless a basis for agreement is found
to terminate the fighting without further delays of proposals and
counterproposals, I will recommend to the President that I be recalled
and that the United States Government terminate its efforts of
mediation.”

Earlier in the memorandum General Marshall stated that he had
carefully considered all the factors involved in the current status of

190

U. S. RELATIONS WITH CHINA

negotiations and military operations and had also taken into consider-
ation the most recent developments, such as the Communist Party’s
announcement of its refusal to submit a list of Communist delegates
to the National Assembly unless certain PCC procedures were met,
the Kuomintang Central News Agency announcement of the Govern-
ment operations against Kalgan, certain informal proposals presented
by Dr. T. V. Soong, and the memorandum of September 30 from
General Chou En-lai. 39

On the following day the Generalissimo gave Ambassador Stuart
an oral account of the reply which he expected to make to General
Marshall’s memorandum. He indicated that he was aware of Gen-
eral Marshall’s embarrassment in the existing situation and that he
always kept his problems in mind. He felt, however, that it was
absolutely essential to the national welfare that the Government gain
control of Kalgan and that the occupation of this city by the Govern-
ment would do much to prevent further military action by the Chinese
Communists. The Generalissimo’s statement served to convince Gen-
eral Marshall almost completely that the time had come for his recall
from China since the Generalissimo was certainly following a definite
policy of force under cover of the protracted negotiations. The Gen-
eralissimo had now completely reversed the position he had taken in
June when he had agreed that the Communists would be permitted
to retain possession of Kalgan, which they had occupied shortly after
V-J Day.

On October 2 the Generalissimo forwarded to General Marshall a
reply to the latter’s memorandum. 40 Referring to General Marshall’s
memorandum the Generalissimo said that

“the Government hereby, with all frankness, expresses its maximum
concessions in regard to the solution of the present problem”.

These “maximum concessions” were as follows: (1) While the Gov-
ernment had originally agreed that the Communist Party be allocated
8 seats and the Democratic League 4 seats on the State Council, it
would now offer 1 seat to a member of the independent group who
would be recommended by the Chinese Communist Party and agreed
upon by the Government. This would make a total of 13 seats held by
Councillors satisfactory to the Communist Party, which should with-
out delay submit the lists of its members on the State Council and of
its delegates to the National Assembly. (2) The location of the Com-
munist troops under the military reorganization plan should be
determined immediately and the Communist forces should enter such
locations according to agreed dates, the foregoing to be decided upon

89 See annex 97.

40 See annex 98.

THE MISSION OF GENERAL GEORGE C. MARSHALL 191

by the Committee of Three and carried out under the supervision of
the Executive Headquarters. The memorandum concluded that if
the Communists agreed to these two proposals “a cease-fire order should
be issued by both sides, when agreement has been reached thereon.”

The reply of the Generalissimo involved lengthy procedures during
which the attack on Kalgan would be carried to its conclusion and it
omitted any reference to the disposition of Government troops, which
was a requirement of the military reorganization agreement of Febru-
ary 25. General Marshall did not think that the United States
Government could afford to be a party to a course of questionable
integrity and he felt that this fact should be made unmistakably clear
to the Chinese Government.

In a long conference on October 4, the Generalissimo informed Gen-
eral Marshall that his departure from China was unthinkable and that
he could not possibly cease his efforts at mediation, since the crisis
in China was the most important in the world and his efforts were of
great historic significance. General Marshall explained that his own
actions and position and those of the United States Government as
represented by him were in question under the existing situation. He
stated that he was convinced that a campaign of force was in progress
and that negotiations could be described as a cover for this campaign —
under such circumstances he could no longer participate in the negotia-
tions. He continued that in June the Government had agreed that
Kalgan would be left in Communist hands at a time when the Govern-
ment was in a much weaker military position than at this time —
Chengte had now been captured, most of Hopei and Jehol Provinces
had been occupied, Government troops had advanced well beyond
Peiping in the direction of Kalgan and Government forces were on the
verge of occupying Chihfeng and Tolun, both important strategic
points. The present procedure, said General Marshall, clearly meant
a campaign of force and not a settlement by negotiation. General
Marshall pointed out that at the end of June he had opposed the whole
procedure in prospect for July and August, when the Generalissimo
had declined to accept the agreements openly reached and had stated
there would be only local fighting in China proper and no fighting in
Manchuria. He continued that he had not only disagreed with that
conception but had thought that it inevitably meant the development
of a full-fledged civil war beyond Government or Communist control
for a long time to come. This conference ended without any indication
on the part of the Generalissimo that he would halt the drive against
Kalgan. General Marshall informed the Generalissimo in conclu-
sion that he regretted to inform him that nothing had transpired in the
discussion to cause him to alter his point of view — in fact, he was the

192

U. S. RELATIONS WITH CHINA

more convinced that the United States Government was being placed
in a position where the integrity of its actions could be successfully
questioned and that he must, therefore, recommend to President Tru-
man his recall.

On the following day General Marshall forwarded a message to
Washington recommending his recall, the pertinent portions of which
are as follows :

“I feel that despite the present vicious Communist propaganda of
misrepresentation and bitter attacks and despite the stupid failure
of the Communists to agree to the Five-Man Committee under Dr.
Stuart, actuated in our opinion through fear of the very delays which
have resulted from this refusal, the United States Government cannot
afford before the world to have me continue as mediator and should
confidentially notify the Generalissimo accordingly. I believe that
this is the only way to halt the military campaign and to dispel the
evident belief of the Government generals that they can drag along
the United States while carrying out their campaign of force. It is
suggested for your approval that the following message be sent by
the President to the Generalissimo :

“ ‘General Marshall recommends that his mission be terminated and
that he be recalled. He has explained to you that he feels that a con-
tinuation of mediation under present circumstances of extensive and
aggresive military operations would place the United States Govern-
ment in a position where the integrity of its actions as represented by
him would be open to serious question. I deplore that his efforts
to bring peace to China have been unsuccessful, but there must be no
question regarding the integrity of his position and actions which
represent the intention and high purpose of the United States Gov-
ernment. I, therefore, with great regret have concluded that he should
be immediately recalled.’ ”

When word reached the Generalissimo through Ambassador
Stuart of General Marshall’s action, the Generalissimo expressed his
willingness to stop military advances against Kalgan for a period of
five days, possibly even longer if the American mediators insisted, on
condition that the Communist Party would immediately participate in
meetings of both the Five-Man Committee and the Committee of Three
and that Kalgan would be the first issue negotiated. The Generalis-
simo also requested that General Marshall and Dr. Stuart discuss the
matter with him on the following morning. Upon the receipt of this
message from the Generalissimo, General Marshall requested the De-
partment of State not to transmit to the President his recommendation
that he be recalled, pending the receipt of further instructions.

THE MISSION OF GENERAL GEORGE C. MARSHALL 193

THE KALGAN TRUCE PROPOSAL

In discussion with the Generalissimo of the Kalgan truce proposal,
General Marshall made clear that a short truce would not allow time
for successful negotiations, particularly with the threat of the resump-
tion of aggressive military action, and a long truce would be too diffi-
cult to control in view of the complications to be faced by the military
commanders in the field and their own aggressive attitudes. General
Marshall suggested that the proposal which he had presented to the
Generalissimo on September 27 be considered — this involved an imme-
diate cessation of hostilities once the Communist Party agreed to the
procedure specified. The Generalissimo said that he was unwilling
to agree to this proposed procedure, and insisted that the cessation of
hostilities must depend upon the successful completion of the meet-
ings of the Committee of Three and the Five-Man Committee. The
Generalissimo said he would, however, order a truce of five days on the
basis of Communist agreement to meetings of the Committee of Three
and the Five-Man Committee as outlined in his memorandum of
October 2. After some discussion, the Generalissimo agreed to extend
the truce period to 10 days and indicated that if, as the end of the
truce approached, it appeared that the Chinese Communists were in a
mood to negotiate, he would lengthen the period. He requested that
the truce be announced as a proposal from General Marshall and Am-
bassador Stuart rather than from the National Government. General
Marshall and Dr. Stuart agreed to this request even though it was not
their proposal — it merely represented the best terms they could obtain.

General Marshall prepared a memorandum 41 outlining the condi-
tions of the truce as agreed to by the Generalissimo and sent it to Dr.
Stuart, who communicated it orally to a Chinese Communist Party
representative, and on the following day sent a copy to this Communist
representative and an additional copy to General Chou En-lai at
Shanghai. The conditions of the truce were as follows : (1) The pur-
pose of the truce was “to carry out the two proposals of the Generalis-
simo” in his communication to General Marshall of October 2;
(2) during the truce period Executive Headquarters field teams would
check on its observance; and (3) public announcement of the truce
would be made by Dr. Stuart and General Marshall without any
announcement from the two parties.

At the same time General Marshall requested the Department of
State to inform President Truman of the foregoing events and of
General Marshall’s decision to withdraw the recommendation for
his recall.

41 See annex 99.

194

U. S. RELATIONS WITH CHINA

The Chinese Communist Party rejected this truce proposal on the
grounds that there should be no time limit to the truce period and that
discussions in the Committee of Three and the Five-Man Committee
should not be limited to the two proposals in the Generalissimo’s
memorandum of October 2 since discussion of these topics during a
truce would be considered as negotiation under military coercion. 42

THE MARSHALL-STUART STATEMENT OF OCTOBER 8, 1946

The Chinese Communist Party’s rejection of the truce proposal
placed General Marshall in a position entirely opposite from the one
he had previously held in opposing continued aggressive military
action. It was now the Government which had offered at least a tem-
porary cessation of hostilities and the Communists who declined.
General Marshall and Ambassador Stuart then issued a joint public
statement on October 8 in regard to the situation. 43 The statement
began with a description of General Chou En-lai’s memorandum of
September 30 on Government military operations against Kalgan and
the Communist attitude thereto. It was a recital of the negotiations
from the time of the receipt of General Chou’s memorandum asking
for a cessation of the attack on Kalgan to the time of the Communist
Party rejection of the 10-day truce proposal.

THE COMMUNIST POSITION

In discussions with General Marshall and Dr. Stuart, Communist
Party representatives stated the Communist views : The Communist
Party wanted a definite cessation of the attack on Kalgan and the
only way for the Government to show its sincerity was to withdraw
its troops to their original positions. The Communists had hoped
that General Marshall and Dr. Stuart would be able to make the
Government realize that it was assuming the role of a victor over
the vanquished and that they would also be able to make the Gov-
ernment change its policy of war, but the Communists had now lost
hope. They appreciated very much the efforts of General Marshall
and Dr. Stuart, but China, they said, was now in the midst of civil war.
The Communists hoped that General Marshall and Dr. Stuart would,
on the one hand, have the United States Government cease its aid to
the Chinese Government and, on the other hand, “have a fair mediating
process which would be acceptable to both sides.” General Marshall
replied that he did not accept this statement regarding the United
States Government and that he did not like the inference of the sec-
ond portion of this statement. He concluded that he very much
feared that his efforts in the negotiations had terminated.

* See annex 100.

41 See annex 101.

THE MISSION OF GENERAL GEORGE C. MARSHALL

195

In view of the unsatisfactory nature of this conversation and with
the desire to do everything possible at this critical period, General
Marshall proceeded to Shanghai to see General Chou En-lai. In their
conversation it developed that some misunderstanding had arisen
from the wording of the terms of the truce proposal which had led
to uncertainty whether the Communist Party was to give considera-
tion to the two proposals of the Generalissimo or to “carry out” such
proposals. General Chou indicated that the two proposals of the
Generalissimo were from the Communist viewpoint unacceptable con-
ditions. One of them, he said, meant that the Communist Party could
not exercise the veto power to prevent revision of the PCC resolutions
and the other proposal meant that, while the Communist troop loca-
tions would be fixed, the Government armies would be free to move.
General Chou concluded that it was the view of the Communist Party
that only a lasting truce would demonstrate that the Government did
not desire a “total split.” He then presented to General Marshall a
three-point military and eight-point political proposal which, he said,
represented the Communist stand on military and political issues.
The military proposal required that all troops resume the positions
held in China proper as of January 13 and in Manchuria as of June 7,
that the location of all troops until the time of army reorganization
should be fixed and that Government troops moved after January 13
should be returned to their original locations. The political proposal
consisted of detailed points for discussion by the Five-Man Committee
and the PCC Steering Committee, which all were related to the PCC
resolutions.

General Marshall emphasized to General Chou that the Generalis-
simo had not planned the truce for the purpose of gaining time for the
movement of troops and munitions, and concluded that after hearing
the views of General Chou it would seem that his mediation efforts
were futile and there was no practical basis for further action on his
part. General Marshall reminded him that some time ago he had indi-
cated that if the Communist Party did not trust his impartiality as
mediator it had merely to say so and he would withdraw. General
Chou said that he would make a written reply to the Generalissimo,
and that, although he had not welcomed the joint statement issued by
Ambassador Stuart and General Marshall, he wished to make clear
that he did not cast any reflection on General Marshall’s actions
throughout the entire period of mediation.

On October 9 General Chou En-lai replied to the Generalissimo’s
memorandum of October 2 and the Kalgan truce proposal in a memo-
randum addressed to General Marshall. 44 This memorandum con-

44 See annex 102.

196

TJ. S. RELATIONS WITH CHINA

eluded that the Government should cease its attack on Kalgan and
that if the Government should permanently call off such an attack,
the Communist Party was willing to participate in meetings of the
Committee of Three and the Five-Man Committee or the PCC Steer-
ing Committee to have simultaneous discussions of (1) the cessation
of hostilities and (2) the implementation of the PCC resolutions.
The memorandum also included the military and political proposals
made by General Chou to General Marshall at Shanghai.

GENERALISSIMO CHIANG’S STATEMENT OF OCTOBER 10, 1946

On October 10, 1946, the anniversary of the founding of the Chinese
Republic, the Generalissimo made a speech, 45 in which, referring to
the negotiations, he made statements along the following general
lines :

The Government asked the Communist Party to abandon its plot to
achieve regional domination and distintegration of the country by
military force and to participate along with all other parties in the
National Government and the National Assembly. It was the hope
of the Government that the various political parties and groups would
submit their lists of candidates to the State Council and of delegates to
the National Assembly. The Government desired a total and per-
manent cessation of hostilities, but during the past 3 months the
Communists had rejected all the proposals of the Generalissimo and
had also turned down the truce proposal presented by General Mar-
shall and Dr. Stuart; the Government was not, however, going to
abandon its policy of a peaceful settlement. It would continue to hope
and seek for a settlement by mediation and consultation.

THE FALL OF KALGAN AND THE SUMMONING OF THE NATIONAL
ASSEMBLY

During this period a group of representatives of the Democratic
League and the China Youth Party proceeded to Shanghai for the
purpose of inducing General Chou En-lai to return to Nanking. Just
as it appeared that their efforts would succeed, a series of events oc-
curred which aroused bitter feeling on the part of the Chinese Com-
munists and one of which created strong opposition from all minority
parties. On October 10, Government forces captured Kalgan with
little or no opposition from Communist troops and on the same day
occupied Chihfeng, the last Communist stronghold in Jehol Province.
Government troops at this time were also reported to be on the verge
of occupying additional Communist-held towns in north Kiangsu.
On the same day the Government announced the resumption of na-

See annex 103.

THE MISSION OF GENERAL GEORGE C. MARSHALL 197

tionwide conscription, which had been suspended following the J apan-
ese surrender in August 1945. Even after these events, General Chou
En-lai was said by Dr. Sun Fo, President of the Legislative Yuan, to
be ready to return to Nanking, but the issuance by the Government on
October 11 of a mandate announcing that the National Assembly would
be convened on November 12, as scheduled, caused General Chou to
cancel his plans. This announcement also resulted in strong criti-
cism from the other minority parties, as they considered it evidence of
unilateral and dictatorial action on the part of the Government. They
asserted that agreement had been reached on April 24 in discussion be-
tween representatives of all parties and the Generalissimo for post-
ponement of the National Assembly, then scheduled for May 5, and
that it was understood that the date for convening the Assembly
would be decided by discussion among all parties. The National
Government explained that its action was in accordance with Kuomin-
tang regulations, which required formal notification and confirmation
of the date of the National Assembly one month prior to its convoca-
tion. The result of this series of events was to cause the cancellation
of the plans for the return of General Chou and the minority party
representatives to Nanking.

DRAFT STATEMENT PREPARED FOR THE GENERALISSIMO

The Generalissimo on October 13 indicated to General Marshall and
Ambassador Stuart that he wished them to consider the possibility of
his making a statement, such as that previously suggested by General
Marshall on September 27, but modified in accordance with recent
changes in the situation. General Marshall, referring to changes in
the situation, pointed out that the important factor was the immediate
cessation of hostilities and that, even if the Communists were forced to
submit to various agreements by the pressure of Government military
action, there could be no healthy results from political negotiations and
reorganization of the Government as the bitterness engendered thereby
would be too deep and the spirit of revenge and distrust too great. The
Generalissimo replied that he could not agree to an unconditional cessa-
tion of hostilities without some evidence for the people and the Govern-
ment leaders that some advantage had been gained for the reorganiza-
tion of the Government. He mentioned the submission by the Com-
munists of their list of delegates to the National Assembly as an
example.

General Marshall reminded the Generalissimo that in early July
the latter had said that it was first necessary to deal harshly with the
Communists and later, after 2 or 3 months, to adopt a generous attitude.
It seemed to General Marshall that after more than 3 months with the

198

U. S. RELATIONS WITH CHINA

Government in possession of all the important strategic points, that
the time had come for the generous attitude of which he had spoken.
The Generalissimo agreed to this but repeated his previous statement
regarding the necessity of obtaining certain advantages prior to the
cessation of hostilities.

Pursuant to the Generalissimo’s suggestion, General Marshall and
Dr. Stuart drew up and forwarded to the Generalissimo a draft of a
statement for release by him, including therein the demand by the
Generalissimo for submission of the names of the Communist delegates
to the National Assembly. This draft statement, based upon the pre-
vious draft presented to the Generalissimo by General Marshall on
September 27, contained the following points : 46

The Five-Man Committee and the Committee of Three to hold simul-
taneous meetings immediately with the following understandings :

The various agreements tentatively reached by the Committee of
Three during the June negotiations to be put into effect and the tenta-
tive agreement reached at the same time for the redisposition of troops
in Manchuria to be confirmed.

Government troops north of the Yangtze River to continue in occu-
pation of places now under their control until the Committee of Three
reached agreement for the redistribution, reorganization and demobili-
zation of the armed forces.

The PCC Steering Committee to confirm without delay any under-
standing reached by the Five-Man Committee.

Questions of local government to be settled by the newly organized
State Council.

The Constitutional Reviewing Committee to be reconvened imme-
diately and the agreed draft to be submitted to the National Assembly
as the basis for its action.

Concurrent with the cessation of hostilities, which was to be effected
immediately following the Communist Party’s agreement to the fore-
going procedure, the Communist Party to announce its intention of
participating in the National Assembly by publishing the list of its
delegates thereto.

EIGHT-POINT PROPOSAL BY THE GENERALISSIMO, OCTOBER 16, 1946

On October 16 the Generalissimo made a public statement 47 in which
he announced the Government’s views and presented an eight-point
proposal, upon acceptance of which by the Chinese Communist Party
the National Government was prepared to arrange for the immediate
cessation of hostilities. The Generalissimo referred to his public state-

46 See annex 104 for full text.

47 See annex 105.

THE MISSION OF GENERAL GEORGE C. MARSHALL 199

ment on October 10, in which he had said “the Government has always
adhered to the political solution of our domestic political problem
and would not give up this policy of peaceful settlement under what-
ever circumstances,” and continued that, despite the recent Communist
rejection of Government proposals, the Government would not aban-
don its policy of “peaceful settlement” and would still seek a settlement
by mediation and consultation. The Generalissimo’s eight-point pro-
posal was very similar to the proposals set forth in the draft statement
prepared by General Marshall and Dr. Stuart, the chief difference
being (1) the deletion of the point regarding the separation of oppos-
ing troops in close contact upon which tentative agreement had been
reached in June and (2) the exclusion of Manchuria from the pro-
posal providing for the settlement of the question of local government
by the State Council. One point required that the tentative agreement
reached for the redisposition of troops in Manchuria be carried out in
accordance with a fixed schedule without delay while the draft state-
ment had provided only that this tentative agreement was to be con-
firmed. The proposals by the Generalissimo were also forwarded to
General Marshall for transmission to the Chinese Communist repre-
sentatives on October 17.

Despite the similarity of the Generalissimo’s eight-point proposal
to the draft statement submitted to him on September 27 by General
Marshall, the lapse of time and the military events intervening, such as
the occupation of Kalgan and the opening of a Government attack on
Antung and Chefoo at the time of the announcement of this eight-point
proposal, largely nullified most of the possibilities for good results.

THE COMMUNIST REPLY

The initial Communist reaction to the Generalissimo’s eight-point
proposal was unfavorable, as indicated by General Chou En-lai at
Shanghai to a group of minority party leaders and by a Communist
radio broadcast from Yenan. The Third Party Group (minority
party leaders) were endeavoring to persuade General Chou to return
to Nanking from Shanghai and three high-ranking National Govern-
ment officials had also gone to Shanghai to confer with General Chou.
General Marshall was of the opinion that the American mediators
should stand aside at this time and encourage Chinese efforts to reach
a settlement, with the Third Party Group in the position of the middle-
man. On October 20 General Chou En-lai and the members of the
Third Party Group decided to return to Nanking on the following
day. Apparently no new understanding had been reached, but the
spirit of the conferences in Shanghai appeared to have offered the
possibility of continued negotiations.

200

U. S. RELATIONS WITH CHINA

In early October the Generalissimo had informed General Marshall
of his plans to proceed to Formosa for a brief visit on October 20.
When, however, it was learned that General Chou En-lai and the
Third Party Group had decided to return to Nanking, the General-
issimo remained in Nanking until their arrival and had a brief talk
with them before departing for Formosa on the same day. Prior to
his departure, he informed General Marshall that he would be absent
for only a few days and that he would return at any moment if his
presence in Nanking were desirable in connection with the negotiations.

During this period fighting continued in various parts of North
China, although the situation remained relatively quiet in Manchuria
except for small-scale actions and Communist disruption of lines of
communication. Communist actions along the Peiping-Hankow
Railway line, intermingled with general fighting in the southern
Hopei area crossed by this line, were reportedly devoted largely to
the destruction of the rail lines. Government forces were apparently
centering their attention on coal mining areas and they occupied two
important coal mining centers during this period. Other high lights
of this period were the Communist-organized mass demonstrations in
Harbin and Tsitsihar in northern Manchuria directed toward the
withdrawal of American troops from China and criticism of Ameri-
can interference in internal Chinese affairs. Further indications of a
deterioration in the situation were seen in the gradual evacuation of
Communist Party personnel from Nanking, Shanghai and Chung-
king to Yenan in United States Army planes furnished at the request
of the Communist delegation in Nanking.

There still remained, however, some basis for hope in the situation
in that General Chou En-lai had finally returned to Nanking from
Shanghai and in that the Third Party Group, whose chief weapon in
the discussions both with the Government and the Communists was the
question of participation or nonparticipation in the National Assem-
bly, was actively engaged in the mediation effort. This enabled the
American mediators to remain in the background.

On October 24, General Chou En-lai informed Ambassador Stuart
that the Chinese Communists could not accept the Government eight-
point proposal.

THE SPREADING OF HOSTILITIES

In the meantime military activity showed no signs of abating. Gov-
ernment forces occupied the last of the main stations on the Tsinan-
Tsingtao Railway and Government forces were moving north along
the Peiping-Hankow Railway in southern Hopei. Most serious was
the opening of a Government drive on Antung in Manchuria, from

THE MISSION OF GENERAL GEORGE C. MARSHALL 201

which the Generalissimo was now insisting that the Communists with-
draw within 15 days after the issuance of a cease-fire order. Commu-
nist propaganda attacks on the United States continued, demanding
the immediate withdrawal of all American troops and of American
support from the National Government. Further indications of the
deterioration in the situation were seen in the reduction of Communist
personnel at the Executive Headquarters at Peiping to the point that
the Communist branch was practically inoperative. The Communists
had also withdrawn their members from all field teams in Govern-
ment-occupied areas in China proper except at four points.

ATTEMPT AT MEDIATION BY THE THIRD PARTY GROUP

In a discussion of the situation with General Marshall on October 26,
General Chou En-lai said that if the Government military advances
continued there would be no necessity for continued negotiations and
the Committee of Three should take action in this matter. Further
questioning revealed that General Chou did not consider a meeting
of the Committee of Three the issue, although he did not object in any
way to such a meeting. This conversation revealed the extent to
which his altitude was governed by the deep suspicion of any terms
presented by the National Government, even when it was pointed out
to him that certain of the National Government’s eight points repre*
sen ted terms desired by the Communists on which the National Gov-
ernment had not previously agreed. General Marshall pointed out to
him that the distrust was so great on both sides that there was all the
more need to find some method on which both could agree for the
termination of the hostilities.

He continued that the situation presented an almost impossible
prospect for agreement unless divested of every detail not vital to either
party and that it was hoped that the Third Party Group might be
able to find some basis for compromise, a course infinitely better than
a mediation procedure by Americans since it would then be a settle-
ment by the Chinese themselves.

General Chou indicated that if the Third Party Group could pro-
duce a compromise proposal with a sound basis he would discuss it
with them, but that, in view of the military situation and Government
attacks in various areas, there would be no basis for any negotiations
if this situation continued. In that event, he said, his presence in
Nanking would be useless.

General Marshall pointed out that he and Dr. Stuart had tried
every possible means of stopping the hostilities without success —
their proposal for the Five-Man Committee, to which the Government
finally agreed but to which General Chou would not agree; the

U. S. RELATIONS WITH CHINA

202

Kalgan truce proposal, which General Chou had characterized as
capitulation; and now another somewhat similar situation in which
it was hoped that hostilities could be ended through the efforts of
the Third Party Group.

The continued absence of the Generalissimo from Nanking, to-
gether with the open resumption of the Government military cam-
paign in Manchuria, was detrimental to the whole situation. The
Third Party Group was becoming discouraged since its three-point
proposal 48 for a settlement of the differences had been rejected by the
Generalissimo, who had told them that they should have adopted his
eight-point proposal of October 16. General Chou En-lai had un-
officially accepted practically all of this proposal, but the news of the
Government capture of Antung caused him to say that he must await
instructions from Yenan. The Third Party Group then recom-
mended that there be an informal discussion by National Government,
Communist, and Third Party Group representatives. The General-
issimo agreed but insisted that his eight-point proposal constitute
the agenda. General Chou En-lai agreed and the meeting was
scheduled for November 4.

On October 28 in a discussion of the situation with the Generalis-
simo, General Marshall described the deep seated distrust the Com-
munist Party had of the motives of the Generalissimo and the Ivuo-
mintang leaders, to which had been added their distrust of the
American mediators. He pointed out that the Communists had no
intention of surrendering and that, while they had lost cities, they
had not lost armies, nor was it likely that they would lose their armies
since they had no intention of making a stand or fighting to a finish
at any place. He continued that the Generalissimo might be able
to take Harbin but that the Government would then be in for endless
trouble.

The Generalissimo replied that the time had come to halt the fight-
ing but he did not wish this to be conveyed to the Third Party Group.
General Marshall then explained that this group appeared to be the
only hope in the situation and urged the Generalissimo to show them
every consideration and build up their prestige by making concessions
and encouraging them to speak frankly to him. He further pointed
out that they had become so discouraged by the failure of their efforts
that they had expressed the desire to withdraw from the negotiations
and return to Shanghai.

On October 30 the Generalissimo informed Ambassador Stuart
that he was willing to make two additional concessions :

48 See annex 106.

THE MISSION OF GENERAL

GEORGE C. MARSHALL 203

(1) The cease-fire order would apply to Manchuria as well as to
China proper. Military redispositions would follow the June settle-
ment and local administration would be dealt with uniformly in all

of China.

(2) Cities and hsien along the Changchun Railway trunk line,
except for those already under occupation by the Government, would
not be taken over before the reorganization of the Government.

The arguments of the Communist Party at this time were not con-
sistent. They had insisted that the Government military leaders were
determined to settle the issues by force, yet the Communists were ap-
parently risking the continuation and expansion of the fighting in the
hope that the Government would make concessions in order to obtain
the list of Communist delegates to the National Assembly. Further-
more, the issues of the State Council and local government were not
now at this stage as difficult to solve as they had been in June and it
seemed that the principal outstanding issue was the reorganization of
the Executive Yuan. The Communists and the Democratic League
seemed to attach great importance to this issue as a condition precedent
to the convening of the National Assembly. In view of the discourage-
ment of the Third Party Group, the problem was to make this Group
aware of the fact that the military settlement was greatly affected by
political issues and that the members of the Group should stand to-
gether and remain strong under the pressure of the Government and
the Communist Party to divide them. The Government continued to
be unwilling to agree to the cessation of hostilities until the Commu-
nists submitted a list of their delegates to the National Assembly and
the Communists were willing to submit such a list only to a reorganized
Government, which to them meant the reorganization of the Executive
Yuan. The Generalissimo had indicated that he would not reorganize
the Executive Yuan until after the meeting of the National Assembly.

Several developments at this time had a bearing on the negotiations.
General Chou En-lai had agreed to return to Nanking from Shanghai
only if the Third Party Group would stand with the Communist Party
in refusing to nominate delegates to the National Assembly until the
Government had been reorganized in strict accordance with the PCC
resolutions. This was proving very embarrassing to the Third Party
Group. The Group were urging General Marshall and Dr. Stuart to
take the lead again in the negotiations, but the American mediators
declined to do so because it was very important that, if possible, a
Chinese neutral group act in mediation, at least on political questions.

Although the National Government had agreed to participate in
an informal discussion of the various issues with the Communists and
the Third Party Group, the Government representatives did not

204

TJ. S. RELATIONS WITH CHINA

attend the meeting on November 4 and the Third Party Group
merely asked General Chou to state the Communist demands. This
he did very completely, covering every issue.

On November 5 the Generalissimo informed General Marshall and
Ambassador Stuart that the absence of the Government members from
the meeting previously agreed to had resulted from a number of indi-
cations that the Communists wished to eliminate American mediation.
General Marshall expressed regret that the failure of the National
Government to participate in the meeting was due to this reason and
stated that the Communist Party either accepted the American media-
tors or did not — they either trusted the American mediators or did not
trust them and Government action could not force a decision in this
particular manner. The Generalissimo then said that the time had
come to stop the fighting and that he was prepared for an unconditional
termination of hostilities. He expressed a desire to have General
Marshall and Ambassador Stuart advise him with respect to the
announcement of the cessation of hostilities, together with a reference
to the convening of the National Assembly, which he hoped the
minority parties would attend.

GENERALISSIMO CHIANG’S STATEMENT OF NOVEMBER 8, 1946

General Marshall and Dr. Stuart, therefore, prepared a draft state-
ment which represented the views of the Generalissimo regarding the
termination of hostilities and met the issues which were certain to be
raised by the minority parties regarding conditions under which the
National Assembly would meet and adopt a constitution. (At the
request of the Generalissimo, General Marshall had frequently, during
the negotiations, prepared for his consideration and possible use drafts
of statements or of proposals which might be introduced into the
discussions. In so doing, General Marshall had acted as a staff officer
might on behalf of the Generalissimo in drawing up documents
containing the latter’s views.) Meanwhile, they received a draft of a
statement prepared by the Generalissimo which they believed would
further complicate the situation since it was highly provocative,
lengthy, argumentative and difficult to understand. Furthermore it
would not terminate the fighting in a way that promised more than
a threat of future use of force.

On November 7 General Marshall and Dr. Stuart met with the Gen-
eralissimo at the latter’s request and presented to him a Chinese trans-
lation of their draft. 49 They expressed the opinion that his draft
statement would merely aggravate the situation in China. The Gen-

49 See annex 107.

THE MISSION OF GENERAL GEORGE C. MARSHALL 205

eralissimo then explained that in preparing the draft he had had to
take into consideration a number of important points :

(1) While there had previously been a divided opinion in the Gov-
ernment regarding the proper course to be followed, there was at this
time a complete unanimity of opinion that a policy of force was the
only course to follow.

(2) He must give careful consideration in the organization of the
National Assembly to the delegates who had been legally elected in
1936 and were now assembled in Nanking and not emphasize the
dominant importance of the PCC resolutions in contrast to the 1936
draft constitution.

(3) He must also give careful consideration to the morale of the
Army, considering the losses that had been recently sustained, if they
were to be greeted by the announcement of an unconditional cessa-
tion of hostilities which amounted to the virtual unconditional sur-
render of the National Government’s position and contentions.

The Generalissimo continued that he could not support the state-
ment in the draft prepared by General Marshall and Dr. Stuart re-
garding an unconditional termination of hostilities before his military
and political leaders and further explained that he stood practically
alone in the belief that matters could be settled by peaceful negotiations
and the fighting stopped. The Generalissimo then asked General
Marshall and Dr. Stuart to reconsider their draft in the light of his
statements and advise him accordingly. General Marshall replied
that he would need an opportunity to consider with Dr. Stuart the
points of view expressed by the Generalissimo as he was seriously
concerned whether he should participate, as a representative of the
United States Government, in the preparation of a paper in accord-
ance with the points of view he had indicated, which were contrary
to the views of General Marshall and those, he thought, of the United
States Government.

In submitting a redraft of the statement to the Generalissimo on
November 8, General Marshall stated that it should be clearly under-
stood that the redraft did not have his approval as a representative of
the United States Government. He continued that he had merely
endeavored to help the Generalissimo as staff officers might assist him
in drafting his views in the least provocative manner but that the
redraft did not have his approval since he was in almost complete dis-
agreement with the attitude of the Government military leaders.

The statement issued by the Generalissimo on November 8 was modi-
fied, but the method proposed for stopping the fighting was incon-
clusive and still held, in effect, a threat of renewed battle to force a

206

U. S. RELATIONS WITH CHINA

political decision. 49 * 1 The statement expressed hope that the State
Council would be reorganized while the final redraft prepared by Gen-
eral Marshall and Dr. Stuart had indicated that it should be reorgan-
ized in order to carry out its functions for the reorganization of the
Government in accordance with the PCC resolutions. This would in-
clude the reorganization of the Executive Yuan, but the Generalis-
simo’s statement merely said that such a reorganization would not take
place prior to the meeting of the National Assembly and made no
mention of the PCC resolutions. As a result of a meeting between
General Chou En-lai and the Third Party Group, the former, under
date of November 8, forwarded to General Marshall a letter 50 which,
in effect, constituted a reply to the eight-point proposal of the Gen-
eralissimo. The letter was noncommittal and referred only casually
to the eight points, but it did hold open the door for continued negotia-
tions and peace. General Marshall transmitted a copy of this letter to
the National Government on the same day.

CEASE-FIRE ORDER BY THE NATIONAL GOVERNMENT

During the period preceding the announcement by the Generalis-
simo of his issuance of a cease-fire order to Government troops, there
had been no improvement in the military picture. Fighting continued
in North China and the Government forces occupied Tunghua in Man-
churia, which had been one of the cities from which the Government
had demanded the withdrawal of Communist forces at the time of
the Generalissimo’s absence in Formosa. Another factor of consider-
able importance in the situation was the decreased effectiveness of the
Executive Headquarters as a result of the vicious Communist propa-
ganda attacks on the Americans and the anti-American demonstra-
tions and campaigns staged in Communist-held areas.

The issuance by the Generalissimo of a cease-fire order set the
stage, however, for the convening of the National Assembly against a
background of peace. The Government approach to the National
Assembly was not, however, sufficiently in accordance with the PCC
resolutions and meant that, if all the delegates appeared, the
Kuomintang would have an overwhelming majority, and a simple
majority vote could determine the character of the constitution with-
out much consideration of the fundamental guarantees agreed to in
the PCC. The Government had been unwilling to agree to any tem-
porary adjournment after the formal convocation, as proposed by
General Marshall and Dr. Stuart, and had passed up an excellent

40a See annex 108.
60 See annex 109.

THE MISSION OF GENERAL GEORGE C. MARSHALL 207

opportunity of capitalizing in a conciliatory manner on the proposal
to stop the fighting.

CONVENING OF THE NATIONAL ASSEMBLY, NOVEMBER 15, 1946

On November 10 the National Government requested a meeting of
the Committee of Three. In view of the failure to reach any agree-
ment regarding the National Assembly, General Chou En-lai was
reluctant to attend the meeting but finally agreed to an informal
meeting which was held on November 11.

General Chou En-lai stated that it appeared futile to proceed with
arrangements for the termination of hostilities when unilateral action
of the Government in convening the National Assembly contrary to
the PCC resolutions meant a definite “split” in China. After the
Government representative presented its proposal in detail, General
Chou finally agreed to transmit the proposal to ^enan for prompt
reply and indicated that he would study the matter and proceed on
the basis that whatever the political impasse at this time, he would
join in working for an agreement for the formal termination of
hostilities.

Meanwhile an informal meeting of the PCC Steering Committee
was held, the first since April 24, at which the Communist Party
requested a postponement of the National Assembly until the end of
November. This request was transmitted to the Generalissimo by a
prominent nonparty member of the Third Party Group.

The PCC Steering Committee also practically reached agreement
on the composition of the State Council and the Committee appeared
to have agreed that the reorganization of the Executive Yuan should
be planned for prior to the National Assembly but not announced until
after the adjournment of the Assembly. At this point the Govern-
ment stopped the meetings of the Committee, but an informal meeting
was held on November 12 which may have had some connection with
the decision by the Generalissimo on November 11 to delay the conven-
ing of the National Assembly for three days. He informed Dr. Stuart
that at the urgent request of the non-party delegates he had agreed to
this postponement and that they had promised that, if such a delay
were granted, the Third Party Group would submit their lists of
delegates and possibly the Communist Party would also do so. The
Communist Party informed the Government, however, on November
12 that it would not participate in nor did it approve of the National
Assembly since it had been convened and also postponed unilaterally
by the Kuomintang.

The National Assembly was formally convened on November 15
with a decidedly limited representation from non-Kuomintang groups.

208

U. S. RELATIONS WITH CHINA

The names of additional delegates from non-party and Youth Party
personnel were submitted on the night of November 15, but the Com-
munist Party and the Democratic League were not represented. The
postponement for 3 days had resulted in the promise of attendance by
some of the Third Party Group, but it had had the effect of disrupting
the unity of action of that Group and had seriously, if not fatally,
weakened their influence for good as a balance between the two major
parties.

The address of the Generalissimo at the opening of the Assembly
was mild in tone and was devoted chiefly to the achievements and
objectives of the National Government. 51 General Chou En-lai, how-
ever, on November 16 issued a statement to the press regarding the
National Assembly, in which he was strongly critical of the Kuomin-
tang, charged that its action in convening the Assembly was contrary
to the PCC resolutions, and gave notice that the Communist Party did
not recognize the Assembly. He also stated that the door of negotia-
tions had been “slammed” by the Kuomintang authorities. 52

THE END OF AMERICAN MEDIATION

General Chou En-lai called on General Marshall on November 16
and asked for transportation for himself and other Communist rep-
resentatives to Yenan during the following week. He indicated that
he was leaving some members of the Communist delegation at Nanking
and that he expected to study the situation with the Communist leaders
at Yenan. He expressed the wish that the Executive Headquarters be
continued for the time being even though there was little it could do.
He expressed fear that the National Government would undertake
offensive operations against Yenan and said that if this occurred it
would mean the end of all hope for a negotiated peace. He also asked
that transportation be provided for Communist personnel in the Ex-
ecutive Headquarters in Peiping and Changchun and in Nanking and
Shanghai to evacuate them to points of safety. General Marshall
stated that American planes would be provided for the purposes re-
quested by General Chou and added that, while he had had no infor-
mation of National Government plans for an attack on Yenan, he
would deplore such action and oppose it strongly. He also said that
if such an attack occurred he would consider that it terminated his
mission.

In conclusion, General Marshall asked General Chou En-lai to take
up with the Communist leaders the question of his continued media-
tion. He said that it was useless for him to endeavor to mediate if he

81 See annex 110.

82 See annex 111,

THE MISSION OF GENERAL GEORGE C. MARSHALL 209

were not trusted as being sincere in an effort to be impartial and that
under such circumstances it would be useless for him to remain in
China. General Marshall stated that he wished General Chou to
determine formally from the Communist leaders at Yenan whether
specifically they wished him to continue in his mediation role and asked
that the matter be viewed as a plain business proposition without re-
gard to Chinese considerations of “face” since he was not interested
in “face.” He explained that his sole interest was the question of
whether he could render some service to China by way of mediation.
General Chou stated that he sympathized with the request by General
Marshall and that he would place the question before the appropriate
Communist authorities at Yenan.

General Chou En-lai departed for Yenan on November 19 in a
United States Army plane. His departure brought to an end the
long period of negotiations and discussions begun in January 1946.
The door had not been closed to further negotiation by either side,
but it seemed likely that a fredi start would have to be made before
there would be any possibility of bringing about an understanding be-
tween the two parties. The attitude of the Communist Party and the
Democratic League indicated their belief that the PCC resolutions
had been totally destroyed and that it would be necessary to con-
vene another conference of all parties similar to that held in January.

It seemed apparent to General Marshall that the Government mili-
tary leaders were in the saddle and were thoroughly convinced that the
Communists would not carry out any agreement reached. The strong
political clique in the Kuomintang was firmly convinced that the Com-
munists would merely disrupt any government in which they partici-
pated. With these two forces working together and the Communist
repulse of every overture General Marshall and Dr. Stuart had per-
suaded the Government to make, the existing tragic situation had
developed. It seemed to General Marshall that the Government
had been using the negotiations largely for its own purposes. Follow-
ing the breakdown of the negotiations in June, the Government had
been waging war on a constantly increasing scale, heavily absorbing
Government funds. These military expenditures, which were con-
suming about 70 percent of the total Government budget, served to in-
crease inflation at the same time the Chinese Government was asking
the United States for large loans.

The expanded currency continued to go into commodity speculation
and hoarding on an increasing scale, and wholesale prices had risen
about seven times during the year. In an abortive effort to combat in-
flation by absorbing currency from circulation, the Government

210

U. S. RELATIONS WITH CHINA

engaged in heavy sales of gold taken from its reserves. In addition,
despite the very considerable imports that were made available
through Unrra and other foreign aid measures, the Government’s
foreign exchange reserves were drawn on to procure imports for which
the depressed level of exports and inward remittances had failed to
provide the necessary means of payment. At the end of 1946, official
Chinese reserves of gold and United States dollars had been depleted
by approximately 450 million dollars, or about 50 percent.

On the other side, the Communist Party had, in General Marshall’s
opinion, defeated itself through its own suspicions, refusing to agree
to possible procedures which might well have resulted in a settlement
of the issues. This had been particularly true of its rejection of the
proposal for the Five-Man Committee under Ambassador Stuart,
which might have led to organization of the State Council and the
carrying out of the other PCC agreements, and of its almost con-
temptuous rejection of the Kalgan truce proposal. It had miscon-
strued each overture arranged by General Marshall and Dr. Stuart
and had apparently been convinced by its own campaign of public
misrepresentation of American intentions and actions. It also chose
to ignore in discussion and in criticisms of Government actions its
own military and other actions that were violations of agreements.

At this time a high-ranking Government official was urging upon
General Marshall the need for American financial assistance to meet
the serious economic situation. General Marshall was very emphatic
in stating to him that it was useless to expect the United States to
pour money into the vacuum being created by the Government military
leaders in their determination to settle matters by force and that it
was also useless to expect the United States to pour money into a
Government dominated by a completely reactionary clique bent on
exclusive control of governmental power.

Another ranking Government official approached General Marshall
at this time in regard to action taken by the Export-Import Bank to
reject General Marshall’s recommendation, approved by the Depart-
ment of State, for the extension of loans for the Canton-Hankow
Railway and for the Yellow River bridge in north Honan. General
Marshall explained that the Bank had given as the reason for this
action that there was not sufficient prospect of amortization to justify
the loans. When the Government official said that he did not under-
stand why the loans had been rejected since they had nothing to do
with the Government military campaign, General Marshall pointed
out that it was the open corruption of the Government as well as its
military policy which entered into consideration.

THE MISSION OF GENERAL GEORGE C. MARSHALL 211

GENERAL MARSHALL’S VIEWS ON THE SITUATION IN CHINA

On December 1 General Marshall held a long conference with the
Generalissimo, which revealed the wide divergence of their views on
what course should be followed to reach a peaceful settlement in China.
General Marshall pointed out that in his opinion the complete distrust
of the National Government in the good intentions of the Communist
Party during the past spring had been replaced by an overwhelming
distrust on the part of the Communists of the good intent of any
proposal advanced by the Government toward a peaceful settlement
of the differences. In the recent negotiations, General Marshall and
Ambassador Stuart had found it impossible to convince the Commun-
ists of the good intentions of the Government or even of the integrity
of action of the American mediators. It was General Marshall’s view
that even the most tolerant approaches of the National Government, no-
tably that represented by the Generalissimo’s eight-point proposal of
October 16, had been neutralized by military action — in this particular
case an attack on Antung and Chefoo at the time of the announcement
of this proposal. In regard to the economic situation General Marshall
pointed out that military expenditures were reported to be consuming
about 70 percent of the National Government’s budget, thus creating a
vacuum in Government assets in order to support extensive military
efforts at the same time that he was being pressed to recommend vari-
ous loans by the United States Government. He informed the Gen-
eralissimo that in the event of a financial collapse the Kuomintang
would be imperiled and a fertile field would be created for the spread
of communism. General Marshall observed that the National Govern-
ment’s military commanders in the field were wholly unaccustomed to
any consideration of financial restrictions. He said that the Commun-
ists were aware of the approaching crisis and that this entered into
their calculations in forming plans. Directly opposed to this economic
problem was the view of the National Government military leaders
that the issues could be settled by force. General Marshall said that
he not only disagreed with this view from a military standpoint but
also felt that before sufficient time could elapse to prove the accuracy
of such a view there would be a complete economic collapse. He
pointed out that the inability of the National Government to keep open
the railway between Tientsin and Chinhuangtao since the withdrawal
of the United States Marines in September was one example; another
was the fact that sections of Hopei Province, presumably reoccupied
by the National Government forces, were still dotted throughout with
Communist headquarters. General Marshall summed up the situation
with the statement that the Communists were too large a military and

212

U. S. RELATIONS WITH CHINA

civil force to be ignored and that, even if one disregarded the brutality
of the inevitable procedure necessary to destroy them, they probably
could not be eliminated by military campaigning. He believed, there-
fore, that it was imperative that efforts be made to bring them into the
Government and that the greatest care should be taken to avoid hav-
ing military action disrupt the procedure of negotiations.

The Generalissimo said that he was firmly convinced that the Com-
munists never intended to cooperate with the National Government
and that, acting under Russian influence, their purpose was to disrupt
the National Government. He felt that it was necessary to destroy the
Communist military forces and believed that if this were done there
would be no difficulty in handling the Communist question. He went
on to say that the situation was different from that existing during
early campaigns against the Communist forces in that roads were
available this time to permit freedom of military movement; he felt
confident, therefore, that the Communist forces could t>e exterminated
in from 8 to 10 months. The Generalissimo, referring to the economic
situation, said that, while it was more serious in the cities, the Chinese
economy was based largely on the agrarian population and there was
no danger for a long time of an economic collapse. 83

At this point General Marshall briefly, but firmly, restated his view
that this large Communist group could not be ignored and that the
National Government was not capable of destroying it before the
country would be faced with a complete economic collapse. General
Marshall did not discuss what was to him of vital concern : the possi-
bility of a collapse of the Kuomintang and the evident growing dis-
approval of the character of the local government, or misgovernment,
that the Kuomintang was giving the country.

Under date of December 4 the Communist representative at Nan-
king forwarded to General Marshall a message from General Chou
En-lai at Yenan setting forth, for transmission to the Generalissimo,
the Communists’ terms for reopening negotiations: 54 (1) the disso-
lution of the National Assembly and (2) the restoration of troop
positions held as of January 13 in accordance with the cessation of
hostilities agreement. General Marshall forwarded a copy of this
message without comment to the National Government. General
Chou En-lai’s message made no reply to General Marshall’s request
for an indication by the Communist Party of its attitude toward his
mediation efforts and posed conditions which the National Govern-
ment obviously could not be expected to accept. It appeared that the
Communist Party had, in effect, rejected American mediation.

03 See below, pp. 220-229.

M See annex 112.

THE MISSION OF GENERAL GEORGE C. MARSHALL 213

The Generalissimo had in early December indicated the Chinese
Government’s desire to obtain General Marshall’s services as an ad-
viser. General Marshall had declined the offer since he believed it
unreasonable to expect that his services as adviser to the National
Government could materially promote a beneficial reaction within the
Government when as a mediator with full backing from the United
States Government he had been unable to influence the Chinese Gov-
ernment. General Marshall was struggling with two problems — the
power of the reactionaries in the Government and the difficulty of
dealing with the Communist Party with its immense distrust of the
Kuomintang. The best defense against communism in his opinion
was for the existing Government in China to carry out reforms which
would gain for it the support of the people. He was concerned over
the destructive influence of the reactionaries in the Government and
felt that the Generalissimo’s own feelings were so deep and his asso-
ciations of such long standing that it was most difficult to separate
him from the reactionary group. He considered that the solution
called for the building up of the liberals under the Generalissimo
while at the same time removing the influence of the reactionaries.
In considering the Generalissimo’s desire for American advice, Gen-
eral Marshall felt that American advice could be helpful in many
matters but that corruption within the Government could not be
eliminated through advice but rather through the existence of an
effective opposition party.

He therefore endeavored, in conversations with National Govern-
ment leaders, to emphasize the importance and necessity of the adop-
tion by the National Assembly of a constitution in keeping with the
PCC resolutions, which would be at least an initial step in the direc-
tion of representative government in China. It was the opinion
of General Marshall that if this kind of constitution were adopted
and the State Council reorganized with seats left vacant for the
Communists and the Democratic League, and if the reorganization of
the Executive Yuan were then begun, it might be possible to discuss
with the Communists ways of their coming into the National Assembly.

In furtherance of the idea of endeavoring to build up a liberal group
in China to a position of influence, General Marshall took every oppor-
tunity in conversations with minority and non-party Chinese to em-
phasize the necessity of the unification of the minority parties and the
organization of a liberal group which could serve as a balance between
the two major parties. He pointed out that the liberal Chinese should
band together in a single liberal patriotic organization devoted to the
welfare of the people and not to the selfish interests of minority party
group leaders. They would then be able to exert influence in the

214

U. S. RELATIONS WITH CHINA

political situation, an influence which would increase as the group
gained prestige. Such a group could stand between the Kuomintang
and the Communist Party and neither of them could normally take a
decisive step without the support of the liberal party. The minority
parties, however, had allowed themselves to be divided and were con-
sequently unable to influence the situation or prevent the use of military
force by the Government or the promotion of economic collapse by the
Communists. In the midst of this deplorable situation stood the
Chinese people alone bearing the full weight of the tragedy.

In conversations with the Generalissimo at this juncture General
Marshall noted definite inconsistencies. The Generalissimo said
that he would do everything he could to bring the Communists
into the Government by peaceful negotiation, but when discus-
sing the question of reopening the two main railways in North
China he said that it was useless to attempt to negotiate with the
Communists on this question, which would have to be solved by force.
He also said that if the railways were taken by force, the Commu-
nists would then be compelled to come to terms. He had taken a sim-
ilar attitude in June, when he had said that “given time, the ripe
apple will fall into our laps,” and again in August, when he had said
that “if hostilities are stopped, there would be no way to force the
Communists to attend the National Assembly.”

THE WORK OF THE NATIONAL ASSEMBLY

Following the departure of General Chou En-lai for Yenan and the
termination of the negotiations, attention was centered chiefly on the
National Assembly and the question of the type of constitution it
might adopt. There were early indications that the Kuomintang re-
actionaries were opposed to the adoption of a constitution along the
lines of the PCC resolutions and that they were endeavoring to obtain
approval of the May 5, 1936 constitution in substantially unchanged
form. These circumstances required that the Generalissimo take a
strong stand if the constitution to be adopted were to be in general
accord with the PCC resolutions.

The Generalissimo did exercise a determined personal leadership,
assisted by almost all other groups and individuals in the Assembly,
in opposing the extreme right-wing clique. The Assembly adjourned
on December 25 with the Generalissimo in full and confident control of
the situation, having demonstrated his ability to override the Kuo-
mintang reactionaries and having restored his prestige through his
action in securing the adoption of a constitution of a democratic
character in reasonable accord with the PCC resolutions.

THE MISSION OF GENERAL GEORGE C. MARSHALL 215

While the new constitution was on its face a democratic document,
General Marshall was concerned with the degree and manner of its
enforcement. The passage of the constitution was only the beginning
and the only guarantee of an honest reorganization of the Government
and a genuine enforcement of the constitution lay in the development
of a truly liberal group in China. General Marshall feared that if the
minority and non-party liberal groups continued to operate individu-
ally, the reorganization of the Government might be a synthetic one.
He continued, therefore, to emphasize the importance of the organiza-
tion of the Chinese liberals into an effective force, which would have
as its objective the support of whatever appeared to be a good govern-
ment.

THE COMMUNIST PARTY’S REACTION

The Chinese Communist Party was apparently adamant in re-
fusing to recognize the National Assembly and the new con-
stitution and on demanding the acceptance of its two conditions as
prerequisites to further negotiation. Communist propaganda attacks
on the United States grew stronger during this period and Communist
spokesmen indicated the probable Communist strategy — the use of
constant harassing tactics on Kuomintang weak points to prevent the
reopening of lines of communication and the refusal of further nego-
tiation until the Government had become weakened by economic deteri-
oration. The Communists still had made no reply to General
Marshall’s inquiry regarding his mediation role.

Although there appeared to be slight prospect for the renewal of
negotiations, General Marshall and Ambassador Stuart, pursuant to
the Generalissimo’s request, suggested that definite proposals be pre-
sented to the Communist Party without any attendant publicity.
They indicated that, with the adoption of a sound constitution, if the
Government proceeded with the establishment of the State Council
and began a genuine reorganization of the Executive Yuan, the Gen-
eralissimo might send a few representatives of importance and liberal
standing to Yenan to discuss with the Communists the question of
reopening negotiations for the cessation of hostilities and Communist
participation in the reorganization of the Government. However,
before the good faith of the Government had been at least partially
established by the adoption of a constitution in accord with the PCC
resolutions, news of the Government purpose had become known. The
Communist reaction was unfavorable and there were indications that
they would resent reorganization of the State Council and the Execu-
tive Yuan prior to consultation with them, apparently feeling that this

216

TJ. S. RELATIONS WITH CHINA

would close the door on any possibility of responsible participation on
their part.

On December 27 General Marshall, in reply to the Generalissimo’s
request for his comments on the situation, made the following remarks :
It was unlikely that the Communists would commit themselves to an
agreement at this time due to their overwhelming suspicion that it was
the Government’s intention to destroy them by military force. The
Government’s military commanders had erred considerably in their
optimistic estimate of what they could achieve toward suppression
of the Communists. They had stated in June that Kiangsu Province
would be cleared of Communist forces within two months and the
Province had not yet been cleared. At the same time they had said
that the Communists could be brought to terms from a military stand-
point within three months. That had not occurred after six months.
The Government refusal to terminate hostilities in order to force the
Communists to participate in the National Assembly had failed of its
purpose. If the Communists would not renew negotiations, the Gov-
ernment should go ahead with the reorganization, leaving the door
open for Communist and Democratic League participation. The
Generalissimo, by his leadership in the National Assembly in opposing
the reactionaries and securing the adoption of a reasonably sound
constitution, had gained a great moral victory which had rehabili-
tated, if not added to his prestige. It was most important, therefore,
that he demonstrate at this time that the new constitution was not a
mere collection of words and that he was determined to institute a
democratic form of government. He must by his own indirect leader-
ship father a coalition of the minority groups into a liberal party,
since, unless such sizable minority groups existed, his efforts in the
National Assembly to secure a sound constitution would be regarded
as mere camouflage for an intention to proceed with one-party govern-
ment. The various minority groups could not of themselves manage
an amalgamation and such action would require his active assistance.
He should also call on the minority party leaders to nominate men for
various posts rather than follow previous practices of neutralizing
the opposition leaders by bribing them with attractive appointments.
If he did not take such action, there could be no genuine two-party
government and his integrity and position would be open to serious
attack. The organization of the minority parties into a large liberal
group would assist him greatly and he could place himself in the
position of the father of his country rather than continue merely as
the leader of the Kuomintang one-party government.

THE MISSION OF GENERAL GEORGE C. MARSHALL 217

VIII. THE END OF THE MARSHALL MISSION

GENERAL MARSHALL’S REFUSAL TO CONTINUE AS MEDIATOR

General Marshall remained in China during this period in the hope
that he might be able to use his influence toward the adoption of a
genuinely democratic constitution. In the past he had often felt that
the National Government had desired American mediation as a shield
for its military campaigns and at this time the Communists had no
desire for further American mediation but feared being placed in an
unfavorable position if they were to reject formally such mediation.
He was not willing to allow himself thus to be used by either party,
nor did he intend to serve as an umpire on the battlefield. He felt
that his continued usefulness as a negotiator had practically been
wrecked by the recent Communist rejection of all Government over-
tures, actions which played directly into the hands of the reactionaries
in the Government, from whom his chief opposition had always come.

General Marshall was of the opinion that, if the Communists declined
to reopen negotiations and repulsed the Government’s overtures, the
Executive Headquarters should be dismantled. He also believed that
he should be recalled to give a first-hand report to the President on
the situation. It was his hope that by issuing a very frank statement
at the time of his recall he might be able to weaken the power of the
reactionaries and strengthen the position and influence of the better
elements, and he believed that the time had come when it was going
to be necessary for the Chinese themselves to do the things he had
endeavored to persuade them to do. He hoped, therefore, that by a
frank statement of Chinese Communist misrepresentations and vicious
propaganda against the United States he might be able to give some
guidance to misinformed people both in China and in the United
States.

GENERAL MARSHALL’S RECALL AND FINAL STATEMENT

On January 6, 1947, the President announced that he had directed
General Marshall to return to Washington to report in person on the
situation in China. General Marshall left China en route to the United
States on January 8, and shortly after his departure the Department
of State made public the personal full and frank statement referred
to above. The greatest obstacle to peace in China, the General stated,
was the almost overwhelming suspicion with which the Kuomintang
and the Chinese Communists regarded each other. Other important
factors which he blamed for the breakdown of negotiations included

218

IT. S. RELATIONS WITH CHINA

the opposition of the dominant group of Kuomintang reactionaries, the
efforts of the extreme Communists to produce an economic situation
which would facilitate the overthrow or collapse of the Government,
and the dominating influence of the military in China. “The salvation
of the situation,” he reported, “would be the assumption of leadership
by the liberals in the Government and in the minority parties and suc-
cessful action on their part under the leadership of the Generalissimo
would lead to unity through good government.” 65

In conclusion, General Marshall said that he had spoken very
frankly because in no other way could he hope to bring to the Amer-
ican people even a partial understanding of the complex problem and
that he was expressing his views publicly, as was his duty, to present
his estimate of the situation and its possibilities to the American people.

Prior to his departure from China, General Marshall had conver-
sations with several high-ranking Government officials. He stressed
the necessity of removing the dominant military clique and the re-
actionaries from the Government structure. He explained that the
frank statement he expected to make would arouse bitterness, par-
ticularly among the radicals, the reactionaries and the irreconcilables.
He said that he had exerted every effort to create an opportunity for
the better elements in China to rise to the top, and he hoped that his
statement would assist in making possible the organization of a pa-
triotic liberal group under the indirect sponsorship of the General-
issimo. He continued that he considered such action imperative from
the standpoint of the Generalissimo since he needed a respectable op-
position party in order to prove to the world his sincerity in establish-
ing a democratic form of government in China. General Marshall
pointed out that such an opposition party would be a strong force for
good, which the Generalissimo could use to wipe out graft, corrup-
tion and incompetence in the Government and in the Kuomintang and
which would provide an effective check on the existing dictatorial
control of the military leaders.

PRESIDENT TRUMAN’S STATEMENT OF DECEMBER 18, 1946

Shortly before General Marshall’s recall to Washington, Presi-
dent Truman on December 18, 1946, after full consultation with his
Special Representative in China, issued a further statement on China.
He reaffirmed American policy as laid down in his statement of Decem-
ber 15, 1945, and reviewed events in China in relation to that policy
during the intervening year. He restated the American belief that a
“united and democratic China” was of the utmost importance to world
peace and that a broadening of the base of the Chinese Government

See annex 113 for full text.

THE MISSION OF GENERAL GEORGE C. MARSHALL 219

to make it representative of the Chinese people would further China’s
progress toward that goal. He expressed deep regret that China had
not yet been able to achieve unity by peaceful methods but hoped that
the Chinese Government would yet find a solution. He characterized
as still sound the plans for political unification and military reorgan-
ization agreed upon early in 1946 but never fully implemented. Stat-
ing that the United States would give careful and sympathetic consid-
eration to ways and means which were presented for constructive aid
to China, the President laid down a continued policy of avoiding in-
volvement in Chinese civil strife and of persevering in a policy of
“helping the Chinese people to bring about peace and economic re-
covery in their country.” 66

The Kuomintang press generally interpreted this statement as an
endorsement of the National Government’s policy and position while
the Communist Party radio attacked it as “mainly an apology for
the United States Government’s reactionary policy toward China
since March of this year.”

AMERICAN WITHDRAWAL FROM THE COMMITTEE OF THREE AND
EXECUTIVE HEADQUARTERS

On January 7, 1947, President Truman announced the nomination
of General Marshall as Secretary of State. Shortly after General
Marshall’s assumption of office the decision was reached to terminate
the connection of the United States with the Committee of Three and to
withdraw American personnel from Executive Headquarters. 57 This
action made it possible to withdraw all United States Marines
from North China, except for a guard contingent at Tsingtao,
the location of the United States Naval Training Group engaged in
training Chinese naval personnel. In issuing an announcement re-
garding the termination of the Executive Headquarters, the National
Government expressed its appreciation of the American efforts to
achieve peace and unity in China.

CONCLUSION

The termination of the American mediation effort did not change
the traditional attitude of the United States toward China. That
effort had failed to bring peace and unity to China. There was a
point beyond which American mediation could not go. Peace and
stability in China must, in the final analysis, be achieved by the
efforts of the Chinese themselves. The United States had endeavored
to assist in attaining those goals and in the process had been sub-

86 See annex 114.

67 See annex 115.

220

U. S. RELATIONS WITH CHINA

jected to bitter attack by many groups, both in China and abroad —
attacks which had, deliberately or otherwise, misrepresented the in-
tentions and purposes of the United States Government. The issue at
this point was squarely up to the Chinese themselves. It was General
Marshall’s opinion that only through the existence of a liberal oppo-
sition group in China could there be a guarantee of good government
and of progress toward stability. The future efforts of the Chinese
themselves would determine whether it was possible to give peace and
stability to the people of China. It was General Marshall’s belief
that the United States should continue to view sympathetically the
problem facing the Chinese and should take any action, without inter-
vening in China’s internal affairs, that would assist China in realizing
those aims which represented the hopes and aspirations of the Chinese
people as well as those of the United States.

IX. ECONOMIC DEVELOPMENTS DURING
THE MARSHALL MISSION

EFFECTS OF INTERNAL CONFLICT

The economic situation in 1946, while not decisive, did influence de-
velopments; more importantly, it carried serious implications for the
future and in no small measure indicated National Government capa-
bilities. The discouraging lack of progress toward a political and
military settlement in 1946 was matched by a steady deterioration
of the National Government’s economic position. In contrast to the
relatively bright situation prevailing on V-J Day, China, 16 months
later, was gripped by a mounting inflation, its reserves of foreign
exchange had been partially depleted, and no real beginning had been
made on the task of internal rehabilitation and economic development.
Rather, the outbreak of widespread fighting between Nationalist and
Communist forces had resulted in general damage to mining and
transportation facilities and in the progressive isolation of mineral
and agricultural production from centers of consumption and export.
The nature of the struggle in China made it possible for the Chinese
Communists to better their relative position by tactics aimed at de-
struction and economic stagnation, while the National Government
was faced with the task of attempting to maintain a military front and
economy extending over vast areas and linked by exposed and lengthy
lines of communication. These considerations had been in the mind
of General Marshall when he warned the National Government against
the consequences of a full-scale civil war.

One of the important blows to the National Government’s economic
prospects, however, was not traceable to Chinese actions or, initially,

THE MISSION OF GENERAL GEORGE C. MARSHALL 221

to the outbreak of civil strife- After the Japanese surrender, Russian
occupation forces systematically stripped equipment and parts from
key plants in the Manchurian industrial complex. As a result, China
did not acquire a functioning industrial system in Manchuria, but
rather, a damaged heavy industry, poorly integrated and partially
inoperable. When Manchuria became the first major area of civil
fighting, transport disruption became a chronic problem. The few
railroad lines operating in Nationalist-held areas of Manchuria were
severely handicapped by shortages of rolling stock and by damaging
Communist raids. Cities were separated from the areas from which
they normally obtained their food supplies and fuel. Manchuria
increasingly became a major economic liability to the National Gov-
ernment.

In China proper, the paramount post-war economic problem was
the continuing inflation. During the war with Japan the Govern-
ment had financed a large part of its expenditures by the issuance of
paper currency. The result had been a steady inflation of prices which
in turn had as one of its consequences the destruction of the savings
and the economic position of middle class Chinese. The inflationary
process, far from being arrested in 1946, was accelerated. Wholesale
prices in Shanghai increased more than seven times during the year.
The official exchange rate between the Chinese National currency
dollar and the United States dollar was raised in August from 2,020 to
1 to 3,350 to 1. By December the open market dollar rate had risen
to 6,500 to 1.

Financial policies followed by the National Government were an
important factor in the inflation. Of total Government expenditures
in the postwar period, less than 25 percent were financed through
taxation and other recurring sources of revenue. Another 10 percent
were met by the partial liquidation of official gold and United States
dollar reserves and former enemy properties. The deficit of approxi-
mately 65 percent of the total budget was covered by currency expan-
sion. The course of the inflation was fostered furthermore by a grad-
ually declining public confidence in both the Government and its mone-
tary unit. The resulting general reluctance to hold Chinese currency
impeded the production and movement of goods and induced specula-
tion and hoarding of commodities on a grand scale, all of which served
to intensify greatly the scarcity of commodities brought about directly
by military operations.

It would have been unreasonable to expect the National Gov-
ernment to make the transition from war to peace, involving as
it did the reoccupation of areas long under enemy control, without
a measure of inflation. With the outbreak of civil strife and the re-

222

U. S. RELATIONS WITH CHINA

suiting high level of military outlays, continuing inflation could
scarcely have been avoided. The budgetary and fiscal operations of
the National Government, however, were of such a nature as to accen-
tuate inflationary developments. Government expenditures were
largely uncontrolled. Funds were dissipated by inefficient military
commanders and in the maintenance of excessively large and wholly
unproductive garrison forces. Much of the tax revenue nominally
accruing to the Government failed to reach the Government’s treasury
because of malpractices prevalent throughout the administrative
hierarchy.

DEVELOPMENTS IN CHINA’S FOREIGN EXCHANGE AND TRADE
POLICIES

Associated with the domestic inflation was a steady depletion of
the Government’s foreign exchange reserves. Domestic inflation had
the effect of inhibiting exports and of enhancing the demand for im-
ports which could serve as a hedge against rising prices. In the
months immediately following the Japanese surrender, the Govern-
ment permitted the abnormal demand for imported commodities to
operate without restriction. In March 1946, action was taken to pro-
hibit the importation of certain luxury items and to place a larger
list of non-essential imports under licensing. In November, control
of imports was tightened by an expansion of the prohibited list, by
the imposition of quotas upon important import items and by the
extension of licensing to all other permitted imports.

At the same time, however, the maintenance of unrealistic foreign
exchange rates had the effect of subsidizing imports and penalizing
exports. Moreover, the proliferation of local taxes and other artificial
barriers to domestic trade tended to reduce drastically the flow of
goods into China’s great coastal cities. Thus, the dependence of
Chinese urban areas on foreign imports was greatly increased while
foreign exchange receipts were simultaneously diminished. Other
factors contributing to the unfavorable balance-of -payments position
and a flight of capital abroad included the widespread smuggling of
exports, the undervaluation of declared exports and the transmittal of
inward remittances through illegal channels.

The cumulative result of the various influences bearing upon China’s
import-export position and of the National Government’s policy of
open-market sales of gold as a counterinflationary device was a decline
in official reserves of United States dollar exchange and gold from the
V-J Day level of 900 million dollars to an estimated figure of approxi-
mately 450 million dollars at the end of 1946. This use of official assets

THE MISSION OF GENERAL GEORGE C. MARSHALL 223

unfortunately did not involve an over-all expansion through pur-
chases abroad of productive plant and equipment in China or an
adequate inflow of repair and replacement parts for existing plant.

EFFECTS OF RESTRICTIONS ON TRADE AND SHIPPING

Chinese regulations governing foreign trade and foreign exchange
transactions hampered China’s foreign trade because of the character
of the regulations and their administration as well as because of the
direct restrictions they imposed. These regulations were highly com-
plex, they varied considerably in their application as between different
Chinese ports and they were often made effective immediately upon
their announcement with consequent hardship to importers. It was
recognized that the Chinese were confronted with a situation which
required the husbanding of foreign exchange resources. There was,
however, a general belief among foreign traders that the Chinese
administrative mechanism charged with enforcing trade and exchange
regulations was unnecessarily cumbersome and arbitrary. Charges
were frequently leveled against the Chinese Government for alleged
corruption and favoritism, open or indirect, to privileged Chinese
firms. Some of the complaints of private foreign firms may have
been occasioned by curtailment of trade due to the stringent foreign
exchange situation which affected all business in greater or less degree,
or by the natural tendency, following the relinquishment by foreign
Powers of extraterritoriality, for Chinese firms to be given a larger
share of China’s foreign trade. While due allowance must be made
for these qualifying circumstances, many of the charges of favoritism
and inefficiency appeared to be well grounded.

In the field of shipping, the Chinese Government took the highly
nationalistic position that, contrary to general international practice,
no foreign flag vessels could carry cargoes from abroad to Chinese
ports not designated as ocean ports. This position excluded foreign
flag vessels from the Yangtze River beyond Shanghai and required
transshipment in the Shanghai area of all cargoes being carried be-
tween ports up the Yangtze, such as the major commercial center of
Hankow, and foreign countries. In consequence, the transportation
of such cargoes in Chinese waters was much more costly than it should
have been, and the process of transshipment in the Shanghai area fre-
quently made that port a bottleneck for commodities urgently needed
in the interior of China.

ECONOMIC TREATY RELATIONS

Despite the increasingly severe controls imposed by the Chinese
Government on foreign trade, and the malpractices associated with

224

U. S. RELATIONS WITH CHINA

enforcement of such controls, China contributed during this period to
creating a framework in which effective international economic rela-
tions might eventually be conducted. China’s negotiation of a com-
mercial treaty and an aviation agreement with the United States, and
its adherence to the General Agreement on Tariffs and Trade, were
important steps in this regard. A modern comprehensive treaty of
friendship, commerce and navigation was negotiated in 1946 to re-
place the old treaty of 1903 and other treaties which had been based on
the previously existing extraterritorial arrangements between the
United States and China. Katifications were exchanged and the
treaty became effective on November 30, 1948. The treaty was based on
the principles of mutuality and nondiscrimination ; in general it pro-
vided that each Government shall assure to nationals of the other, with
some exceptions and subject to its general laws, the same treatment and
rights enjoyed by its own nationals and provided also that the na-
tionals of either in the territories of the other shall be entitled to any
rights or privileges which may be granted to the nationals of a third
country. The trade and commerce of the two countries with each other
were also guaranteed similar rights to most-favored-nation treatment.
Thus the treaty was in reciprocal terms and provided for no rights
or privileges for nationals of the United States in China which it
did not equally confer on Chinese nationals in the United States.

Also in 1946 preliminary steps were taken for the negotiation of a
reciprocal trade agreement with China. This agreement was even-
tually consummated in 1947 when the United States negotiated with
China and 21 other countries a multilateral reciprocal trade agree-
ment (the General Agreement on Tariffs and Trade) which reaffirmed
the principle of most-favored-nation treatment, incorporated various
general provisions governing trade relationships and provided for
tariff concessions resulting in mutual reductions or bindings of duties
on certain tariff classifications of the respective countries. This agree-
ment became effective with respect to China on May 22, 1948.

A bilateral air transport agreement between the United States and
China was signed in Nanking on December 20, 1946. This agree-
ment is based on standard clauses drawn up at the Chicago Interna-
tional Civil Aviation Conference of 1944 and incorporates the so-
called Bermuda principles contained in the bilateral air transport
agreement between the United States and the United Kingdom. It
is to be noted that conclusion of the latter agreement in February
1946 marked the establishment of a pattern of air transport agree-
ments which, with slight deviations, the United States has negotiated
ever since. The pattern of these air agreements involves in general
the following factors: routes, privileges (accorded to an air carrier

THE MISSION OF GENERAL GEORGE C. MARSHALL 225

of one nation in the air space of a second) , rates, frequency of opera-
tion, and capacity of aircraft. With the exception of prescribed routes
over which aircraft of each contracting party operate, the remainder
of the agreement is relatively standard and grants full reciprocity to
each signatory country. The bilateral air transport agreements nego-
tiated by the United States are purely commercial aviation agreements
for the reciprocal exchange of commercial air rights. The United
States-China air agreement makes no provision for base rights for
either Government in the territory of the other. Under this agreement
the airlines of each country are accorded the right to operate services
to the other over three different routes. Since the conclusion of the
agreement the United States has utilized two of the routes granted to
it in services to Shanghai, while China has exercised its route privileges
for the operation of a mid-Pacific route to San Francisco.

FOREIGN AID IN 1946

During 1945 and 1946 a series of measures were taken by foreign
governments which provided China with very substantial external
economic aid. 58 The commodities and services made available by these
various measures contributed to meeting China’s abnormal need fol-
lowing the Japanese surrender for food, clothing, medical supplies
and raw materials and provided the capital equipment necessary to
begin the rehabilitation and reconstruction of Chinese agriculture
and of certain key industrial and transportation facilities.

The China program of the United Nations Relief and Rehabilita-
tion Administration represented the largest single measure of foreign
aid to China during this period and was the largest program that
Unrra carried out for any one country. Unrra began its shipments
to China in November 1945 and by the end of that year had shipped
approximately 300,000 tons of supplies. The Unrra program for
China continued throughout 1946 and 1947, and a few deliveries
took place thereafter. The value of goods delivered to China under
the Unrra program, including shipping and insurance costs, is esti-
mated at 658.4 million dollars. The United States contribution to
the world-wide Unrra fund was approximately 72 percent. It may
therefore be said that the United States contribution to the Unrra
China program amounted to 72 percent of 658.4 million dollars, or
474 million dollars. Unrra’s China program consisted chiefly of food
and clothing and of a wide variety of capital goods and materials
important to the rehabilitation of China’s agriculture and industries.
In addition, Unrra provided large numbers of technical and super-

M See annex 181.

226

TJ. S. RELATIONS WITH CHINA

visory personnel who assisted the Chinese in the distribution of con-
sumption commodities and the installation of capital goods.

During the latter part of 1945, the Chinese Government approached
the Export-Import Bank with applications for the extension of cred-
its to cover a variety of rehabilitation needs. No action was taken on
these requests, however, and in January 1946 the National Advisory
Council, acting in accordance with General Marshall’s recommenda-
tions, decided that a major program of financial assistance to China
must await satisfactory political and economic developments in that
country. General Marshall was therefore able to use the possibility
of American economic aid as a bargaining point in trying to achieve
his political objectives. By early 1946, the progress of the negotiations
between the National Government and the Chinese Communists made
it appear that a peaceful settlement might be reached which would pro-
vide a basis for gradual stabilization and rehabilitation of the Chinese
economy. Consequently, the Export-Import Bank gave favorable
consideration, upon the recommendation of General Marshall and the
Department of State, to a number of Chinese applications and during
the first quarter of 1946 authorized a total of 66.8 million dollars in
credits to the Chinese Government. These credits were primarily for
cargo vessels, railway repair materials, electric-power generating
equipment and raw cotton, and they were all on a long-term basis
except for the cotton credit, which was to be repaid in 24 months. A
credit of 16 million dollars previously authorized for the Yungli Chem-
ical Industries was not finalized by guaranty of the Chinese Govern-
ment until 1947. This brought the total of Export-Import Bank
credits actually made available to China after Y-J Day to 82.8 million
dollars.

In recognition of the magnitude of Chinese requirements for recon-
struction and the possibilities for economic development under orderly
conditions, the United States Government gave consideration during
the same period to setting aside substantial funds to assist China in
this task. In April 1946, following the recommendation of General
Marshall and approval by the National Advisory Council, the Export-
Import Bank authorized the earmarking until June 30, 1947, of 500
million dollars of the Bank’s funds for the possible extension of indi-
vidual credits to the Chinese Government and private Chinese in-
terests. It was contemplated that such credits would be confined to
particular projects and would be subject to the usual criteria govern-
ing the Bank’s lending operations. No implementing agreements
were consummated, however, between the Bank and the representatives
of the Chinese Government.

THE MISSION OF GENERAL GEORGE C. MARSHALL 227

During the latter months of 1946, General Marshall and the De-
partment of State recommended favorable consideration of certain
Chinese projects by the Export-Import Bank. The Bank refused at
this time to take favorable action on Chinese credit proposals chiefly
because of the outbreak in mid- 1946 of widespread fighting between
the Chinese Communists and National Government forces and the
clear implications that this development carried for Chinese economic
prospects. In this situation, the Bank was unable to find reasonable
assurances of repayment regarding which it had a statutory obligation.

In February 1946 the Canadian Government extended a long-term
credit of 60 million dollars to the Chinese Government. Of the total
credit, 25 million dollars was to be used to purchase (a) supplies
and equipment originally requested by China from Canada as mutual
aid but undelivered as of V-J Day, (b) other commodities in produc-
tion in Canada on September 1, 1945, which were surplus to Canadian
requirements, and (c) certain used industrial equipment, together
with (d) the cost of reconverting and processing such equipment.
The remaining 35 million dollars of the credit was to be used for
equipment, supplies and services required by the Chinese Government
for reconstruction and other post-war purposes.

The United States extended a credit to the Chinese Government,
somewhat similar to the Canadian credit referred to above, in an
agreement of June 14, 1946, commonly referred to as the Lend-Lease
“Pipeline” Credit Agreement. This agreement provided for the de-
livery on a long-term credit basis, pursuant to section 3 (c) of the
Lend-Lease Act, of civilian-type equipment and supplies contracted
for but undelivered on V-J Day under the wartime lend-lease pro-
gram for China. It was subsequently determined that a total of 51.7
million dollars in equipment and supplies could be furnished under
contracts covered by this agreement.

The sale to China of United States civilian-type war surplus prop-
erty with an estimated procurement value of 900 million dollars was
authorized or recognized under an agreement of August 30, 1946, be-
tween the two Governments. 59 The property was located in India and
China and on 17 Pacific islands and consisted in large measure of small
ships and marine equipment, fixed installations, vehicles of all types,
construction equipment and air-force supplies and equipment. The
remainder of the property comprised a wide variety of communications
equipment, tools, shop equipment, industrial machinery, electrical
equipment, medical equipment and supplies and chemicals. The
agreed realization to the United States for this property was 175 million

69 For the Chinese Communist reaction to this agreement see p. 180.

228

U. S. RELATIONS WITH CHINA

dollars. Of this amount 55 million dollars was to be repaid in Chinese
currency on a long-term credit basis, 20 million dollars of which the
United States Government was in turn to use for cultural and educa-
tional activities in China. The balance of this credit, 35 million dollars,
was to be made available in Chinese currency for acquisition by the
United States Government of real property in China for diplomatic and
consular use and for other American governmental expenses in China.
To this credit was added an agreed offset of 150 million dollars against
the United States wartime indebtedness to China arising out of ex-
penditures by the Chinese Government for the United States Army.
While these considerations totaled 205 million dollars, the United
States as a part of the agreement established a fund of 30 million dol-
lars to be used by China for shipping and technical services arising out
of the property transfer. This 30-million-dollar fund reduced the total
United States realization to the net figure of 175 million dollars

In October 1945 the Government of China had presented to the
United States a proposal for technical collaboration in agriculture
and forestry. In the course of the ensuing discussions it was agreed
to establish a joint China-United States Agricultural Mission to
make an intensive study of the problems of agricultural improve-
ment in China, with special attention to be given those agricultural
commodities which play an important role in Sino- American trade.
The President of China stressed the importance of the mission’s
assignment and technical collaboration in general in a letter to the
President of the United States which read in part as follows :

“We have been for centuries primarily an agricultural nation.
The farmer is traditionally regarded with affection and respect.
During recent times, unfortunately, our agricultural technique has
fallen behind due to delay in the adoption and application of new
scientific methods. I am keenly conscious of the fact that unless and
until Chinese agriculture is modernized, Chinese industry cannot
develop ; as long as industry remains undeveloped, the general econ-
omy of the country cannot greatly improve. For this reason, I
heartily agree with you that any plan for cooperation in economic
development between our two countries should include agriculture.”

The United States Government dispatched 10 agricultural experts
to China for the mission, the Government of China appointed 13 and
work was commenced on June 27, 1946. Conferences were held with
Government officials, businessmen and agricultural specialists at
Shanghai and Nanking, and field trips were made through 14 prov-
inces and the island of Taiwan. One group concentrated on the broad
aspects of the mission’s assignment — education, research, and rural

THE MISSION OF GENERAL GEORGE C. MARSHALL 229

economic and social problems — while other smaller sections studied
the production and marketing of specific commodities including tung
oil, silk, tea, carpet wool and fish.

The mission submitted its report jointly to the two Governments
late in 1946, and its recommendations were received by the United
States Government as the conclusions of independent technical
experts.

The report outlined in some detail a comprehensive and long-range
program that the Chinese Government might undertake for the im-
provement of China’s agriculture. The mission’s recommendations
included the following points : (1) greater emphasis on fertilizer pro-
duction, development of irrigation, improvement of plants and
animals, development of forestry, and production of fruits, vegetables
and livestock to improve diets; (2) adjustment of the exchange rate,
reduction in costs of transportation and credit, and improvement of
standardization and quality to encourage the production and export
of important agricultural commodities; (3) provision of adequate
farm credit, improvement of tenancy conditions, advancement of land
surveys, registration, and appraisal, and enforcement of the Land Law
of 1946 with respect to taxation of land; (4) furthering of programs
relating to general education, public health, transportation, river con-
servancy, and flood control; (5) emphasis on agricultural instruction,
research and extension work within an integrated system; (6) creation
of a single Government bank to serve agricultural needs; (7) con-
sideration of measures to guard against a rapid increase in the growth
of population.

In his statement of December 18, 1946, President Truman had
renewed the offer of American assistance in implementing the recom-
mendations of the mission in so far as feasible.

Despite the continuing efforts of the American Government to elicit
Chinese action few constructive measures were taken by the Chinese
Government in the field of agricultural improvement. Several of the
recommendations of the Joint Mission, however, were later embodied
in the program of the Joint Commission for Rural Reconstruction in
China, established under the terms of the China Aid Act of 1948. 60

60 See chapter VIII.

CHAPTER VI

The Ambassadorship of John Leighton
Stuart, 1947-1949

I. THE POLITICAL AND MILITARY SITUATION

FURTHER EFFORTS AT NEGOTIATION

The American mediation effort described in chapters III and V had
ended, but the Chinese Government did not at once cease its attempts
to find some method for the resumption of political negotiations. On
January 15, 1947, the Generalissimo informed Ambassador Stuart that
he had been meeting for several days with prominent Government
leaders in an attempt to determine some means of reopening negotia-
tions. These consultations resulted in four agreements within the
Chinese Government which were given to the Ambassador. The points
listed were as follows :

(1) The National Government desired to send a delegation to
Yenan or would invite the Communist Party to send one to Nanking
to continue discussions, or it would agree to a round-table conference
at any mutually acceptable place.

(2) The Government and the Communists should at once issue a
ceaserfire order and confer on its implementation.

(3) The Government desired to resume discussions of practicable
plans for the reorganization of the army and the restoration of com-
munications based on the principles of the Committee of Three.

(4) The Government expressed a desire to reach an immediate
agreement with the Communists on the political control of disputed
areas.

The Generalissimo asked the Ambassador to get in touch with the
principal Communist delegate still in Nanking, Mr. Wang Ping-nan,
to ascertain if the Communists would invite a Government peace
delegation to Yenan. Dr. Stuart was specifically requested not to
disclose the foregoing four points, but if asked he could say that
tentatively General Chang Chih-chung, Governor of Sinkiang, would
represent the Government. Dr. Stuart could also state, if asked,
that the Government attached no conditions to peace discussions. It
230

AMBASSADORSHIP OF JOHN LEIGHTON STUART

231

was the avowed hope of the Generalissimo that discussions without
conditions might be more fruitful than previous ones and that the
original spirit of the Political Consultative Conference agreements
could be recaptured.

On January 16 the Ambassador saw Wang Ping-nan, who asked the
anticipated questions and received the replies which the Generalissimo
had authorized. The Ambassador took particular pains to make it
clear that he was acting only as a transmitting medium and not as
a direct participant. The Chinese Communist reply was prompt and
categorical to the effect that if the Government would agree to the
two previously stipulated conditions (that is, the abrogation of the
constitution and the restoration of the military positions held Janu-
ary 13, 1946, the effective date of the cease-fire agreement) the negoti-
ations could be resumed in Nanking; if not, nothing could be gained
by sending a delegation to Yenan. The Communist representative
insisted, however, that this reply was not intended to break off negoti-
ations but rather to clear the ground for subsequent resumption. The
Ambassador on January 23 informed the Department of State that it
was his belief that the Chinese Communists meant what they said on
this point as they were militarily confident and believed that the
Government would be forced within the ensuing few months to reopen
discussions on Communist terms.

On January 20 the Ministry of Information, on behalf of the
National Government, published a long statement outlining the course
of negotiations with the Chinese Communists. It stated, int&r alia:

“As far back as the beginning of the war of resistance, in order to
pool together the nation’s efforts, the Government called the People’s
Political Council consisting of representatives of all political parties
and independents.

“From start to finish, the Government has regarded the Communist
problem as a political problem. The Kuomintang at its Tenth Cen-
tral Executive Committee Plenary Session in 1942 and Eleventh
Plenary Session the following year persistently advocated an early
solution through political means.

“After May 1944 the Government has been negotiating with the
Communist Party without let-up in the hope that a peaceful settle-
ment could be reached.”

The Ministry of Information concluded its statement with the an-
nouncement that the Chinese Government would make another appeal
to the Chinese Communists for additional conversations and listed the
four-point proposal, which had previously been communicated to the
Communist representatives. The Communists replied publicly on

232

U. S. RELATIONS WITH CHINA

January 29, charging that the four points of the Government were
nothing but a fraud which rejected the real prerequisites for peace
negotiations. The Communists refused to accept the Nationalist
offer until their previous two conditions, namely abrogation of the
constitution and a return to the military status quo of January 13,
1946, had been accepted. On the following day the Nationalist
Ministry of Information repeated its previous offer but added that
the two conditions demanded by the Communists would have the
effect of destroying the Chinese Republic. The Government there-
fore felt that it had no alternative but to proceed with its own pro-
gram for political democratization. It appealed to all groups and
factions to join in the work of the reconstruction and rehabilitation
of China. The Generalissimo, on February 16, 1947, followed up this
plea with one of his own, pledging his Government to a 10-point pro-
gram of economic rehabilitation and asking for the cooperation of all
citizens of China. 1 On February 11, the Government notified the
Communist delegation in Nanking that its presence in Government
areas was no longer desired.

REVERSAL OF COMMUNIST POLICY

Indications of the attitude of the Chinese Communist Party were
given in statements which appeared early in 1947. The first was a
statement by Chou En-lai 2 which, together with the other documents,
represented a major change in the public official Communist line
and a distinct reversal of policy as previously set down in 1945 by
Mao Tse-tung, as Chairman of the Central Committee, in his report
to the Seventh Party Congress entitled The New Democracy. The
second document was a statement by Lai Ting-yi, head of the Depart-
ment of Information of the Chinese Communist Party and a member
of the Central Committee, in which he aligned the Chinese Communists
with Russia on foreign policy and denounced the United States as the
heir of German and Japanese Fascists. 3 On February 1, the Central
Committee issued a strong denunciation of the National Government,
accused the Government of selling out China to foreign interests and
announced that the Chinese Communists would refuse to recognize
any agreements and understandings reached by the National Govern-
ment subsequent to January 10, 1946. 4

1 For full text of these statements see annex 116 (a) -(d).

2 See annex 117.

3 See annex 118.

4 Full text in annex 119. The length to which this change has gone is indicated
in a speech by Mao Tse-tung given on June 30, 1949, which is included as annex
120 .

AMBASSADORSHIP OF JOHN LEIGHTON STUART

233

THE SOVIET PROPOSAL OF MARCH 10, 1947

On March 10, at a meeting of the Council of Foreign Ministers
at Moscow, the Soviet Foreign Minister, Mr. Molotov, proposed that
problems relating to the settlement of the civil war in China be in-
cluded in the agenda of the meeting of the Council. The United
States Government did not concur in the Soviet proposal. This view
was reinforced by the instantaneous reaction of the Chinese Govern-
ment. The Chinese Foreign Minister, Dr. Wang Shih-chieh, on March
11 informed General Marshall that China would strenuously object to
having its internal affairs placed on the agenda of the Moscow Con-
ference. At the same time the Foreign Minister issued a similar
statement to the press. The Chinese Communists took their cue from
Moscow and issued a statement favoring inclusion of China on the
Moscow Conference agenda, but insisted that the Chinese Communists
themselves should be represented at any such discussions. In view of
the opposition to the Soviet proposal, it was dropped.

Dr. Wang also informed the American Ambassador that on March 8
the Soviet Ambassador had called with two requests: (1) that
China take over the administration of Dairen and Port Arthur and
(2) that joint operation be undertaken of the railway line from Dairen
through Mukden to Changchun. Subsequently a Chinese Govern-
ment Mission under strict Russian surveillance did visit Dairen to
survey the situation. The negotiations reached an impasse over the
questions of armed police and the admission of Chinese troops into
the area and were not renewed.

REORGANIZATION OF THE LEGISLATIVE YUAN AND THE CONTROL
YUAN, MARCH 1, 1947

In the meantime, the functioning of the National Government had
been paralyzed to a considerable extent by the slowness with which
its projected reorganization was proceeding. The new Constitution
of China had been adopted by the National Assembly on December 25,
1946, with the provision that it would go into effect one year from the
date of its adoption. During the interim period a transition govern-
ment would be organized to prepare the country for constitutional
government, to eliminate one-party rule by termination of the period
of political tutelage, and to prepare other groups for participation
in the national political life. The organization of this new govern-
ment proved to be far more difficult than had been anticipated.

The difficulties principally arose from the inability of the Kuomin-
tang and the third parties to agree in their negotiations upon the
division of the principal positions in the Five Yuan and the State
Council. It should be noted, parenthetically, that throughout these

234

TJ. S. RELATIONS WITH CHINA

negotiations a certain number of positions were reserved for the
Communist Party if it should choose to participate. There was at no
time, however, any indication that the Communists had any intention
of participating and, in fact, all their public announcements were
emphatic in stating that it would be impossible for them to participate
under what they called “an illegal constitution.”

At a fairly early stage in the negotiations it also became apparent
that the Democratic League, the third largest party, had so far asso-
ciated itself with the stand taken by the Communists that it too would
not participate. This reduced the negotiations, apart from the in-
ternal manipulations within the Kuomintang itself, which became the
most important phase, to a division of positions between the Kuomin-
tang on the one hand and the Youth Party and the Social Democrats
on the other. These two minor parties commanded so small a follow-
ing that the efforts to get them in the Government could be considered
important only in a symbolic sense of nominally ending one-party
rule.

At midnight, March 1, the Government announced the appoint-
ment of 50 new members to the Legislative Yuan, of whom 17 were
Kuomintang, 13 Youth Party, 12 Social Democrats, and 8 non-parti-
san. At the same time 25 new members were named to the Control
Yuan, of whom 9 were Kuomintang, 6 Youth Party, 7 Social Demo-
crats, and 3 non-partisan. Forty-four new members were added to
the People’s Political Council, of whom 11 were Kuomintang, 11
Youth Party, 11 Social Democrats, and 11 non-partisan. These new
members added to the old membership gave the third parties a
minority representation, but nonetheless one much larger proportion-
ately than their actual political following.

The next day Dr. T. V. Soong, following a frank conversation with
the Generalissimo, resigned as Prime Minister. Ambassador Stuart
interpreted this development and its background to the Department
of State in the following terms on March 3 :

“T. V. Soong had a long talk with Generalissimo on the afternoon
of the evening that he handed in his resignation. At any rate the
latter interview was not unamicable and the Generalissimo, although
urging him to maintain his position as chairman of the Supreme
Economic Council, readily accepted his resignation as President of
the Executive Yuan and then without much ado as the chairman
of the Supreme Economic Council as well. My surmise from avail-
able information is that Generalissimo propounded to T. V. Soong
in the first conversation his military plans for intensification of the
civil war which intev alio, will require, in view of recent price increases,
a rise in pay and supply allotments for the Army in the near future.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

235

Hemmed in on the one side by relentless demands of civil war and
on the other by increasingly painful limitations which his growing
unpopularity was imposing on his freedom of action, he decided to
save his reputation — if not his face — by chucking in his hand before
it was called and he was well smeared.

“My belief is that the Generalissimo has determined to embark on
an all-out military campaign to free as much of China proper from
Communist control as possible to the end that after about three months,
the Communists would be chastened (where they are now blatantly
bumptious) and concentrated in a much smaller area. My guess is
that feeling as he does about Communists, the Generalissimo, although
nervous about the Mqscow Conference, does not envisage any improve-
ment promising permanency in Soviet-American relations and there-
fore is not without hope that the United States will in due course
come in some fashion and to some degree to the Government’s assist-
ance. There is no doubt that he is now increasingly concerned about
the rate of financial deterioration and the ability of Communists to
prolong the struggle and create havoc. However, he has made a point
of telling Chinese who call upon him that China must stand on its
own feet and face the future without American assistance. I have a
sense that the CC Clique 6 work on him in this wise and, concomi-
tantly, to the effect that he will be getting the worst of both worlds
if he weakens himself domestically and fails to achieve compensatory
aid from the United States. That his mood is exigent and bitter
is evident as indicated in today’s speech. As I see it, these next few
days are important for the reorganization plans — important in that
this fight-it-all-alone mood should not find reflection in the appoint-
ments and powers of the State Council and the Executive Yuan.”

AMBASSADOR STUART’S SUMMARY OF DEVELOPMENTS

On March 12, Ambassador Stuart summarized the developments
of late February and early March, together with his interpretation as
given below, this being of particular importance in view of the im-
pending Third Plenary Session of the Central Executive Committee
of the Kuomintang which would have an important bearing on future
developments :

“Events have moved so rapidly in China during the past 10 days
and have included so many complicating factors that it might be use-
ful at this time to present a brief over-all summary drawing together

“The CC Clique is the extreme right-wing faction of the Kuomintang and is
completely dominated by two brothers, Chen Li-fu and Chen Kuo-fu, who have
long been closely associated with the Generalissimo. The latter has relied on
them to discipline the rank and file of the Party.

236

U. S. RELATIONS WITH CHINA

and correlating previous telegrams. The two main aspects are, of
course, the military and the political-economic, with the former giv-
ing a kind of desperate urgency to the need for political adjustment
because the continuance of civil war is an increasing drain on the
national economy, making a mockery of attempts to move in the
direction of normal economic development.

“The current military campaigns have surpassed in scope anything
seen in many months. The Government obviously wanted, and badly
needed, a major military victory in Shantung. This it has failed to
obtain. Communists took the initiative in Manchuria, managing to
force their way to the very gates of Changchun. They have now been
turned back by Nationalist reinforcements and in this sense have suf-
fered a defeat if, as has been suggested, their objective was a territorial
victory to strengthen the hand that they hope the Soviets will play
for them at the Moscow meeting. If, on the other hand, the prin-
cipal objective was further to sap Nationalist strength, then they have
achieved a victory. The Military Attache’s intelligent guess on casual-
ties is 10,000 for the Government and 20,000 for the Communists in
Manchuria, and 40,000 for the Government and 20,000 for the Com-
munists in other areas, mainly Shantung.

a The establishment of general headquarters at Hsuchow seems to be
a desirable and long-needed development from the Government stand-
point in that it puts it in a better position to direct and control opera-
tions. The Military Attache also states he sees signs on both sides
of a decreasing desire to fight and more particularly by Government
forces. Even high-ranking officers have said to him that whereas
there seemed to be some point in endless fighting when the enemy was
Japan, there is not much stomach for fighting when it is against
Chinese. This lack of morale appears to be reflected among the troops
who do not understand what the civil war is all about and who, in
some instances, have been susceptible to Communist appeals to lay
down their arms. The Generalissimo’s insistence on increased pay
to improve troop morale played a part in Soong’s resignation.

“Against this grim background have been the political changes of
the last 10 days, which, so far, are inconclusive. The reorganization
of the State Council and the Executive Yuan is still in the negotiation
stage. The stumbling block is whether and on what terms the Social
Democrats will participate ....

“In the excitement of other events, the announcement by the Gov-
ernment of additional government, third party and non-partisan
members to the Legislative and Control Yuan, the PPC, and the
Standing Committee for the Enforcement of the Constitution caused
only a minor ripple. The Government stand that this development

AMBASSADORSHIP OF JOHN LEIGHTON STUART

237

constitutes a significant step in the direction of relinquishing one-
party control has received little attention and is not likely to do so
pending reorganization of the State Council and the Executive Yuan.

“The heightened tempo of repressive police activities all over the
country, and particularly in areas where the Communists have been
most active has been widely reported and variously interpreted, de-
pending on the political views of the commentator. This development
has been strongly condemned in independent and left-wing circles.
At the same time the attitude has been general that however repre-
hensible these activities may be, the Government can hardly be ex-
pected to loosen its controls as long as it is engaged in a life and death
struggle. Concomitantly, there is general belief that with the re-
turn of all Communist delegations to their own territory the possi-
bility of peace negotiations and political settlement has been indefi-
nitely postponed, making all the more improbable any prospect of
halting economic deterioration.”

THE CAPTURE OF YENAN

The Generalissimo in his statement of February 16, indicating the
intention of the Government to consolidate its current positions, had
said : “On its part the Government will confine its military efforts to
the protection and restoration of communication systems so necessary
for the economic life of the nation and we shall spare no efforts to
continue to seek for a political solution of the Communist problem.”
At that time Dr. T. V. Soong had categorically stated to the Ameri-
can Ambassador that both he and the Generalissimo were of the same
mind, that Yenan should not be attacked. Subsequently the Military
Attache was similarly advised by the G-2 section of the Ministry of
National Defense. It was therefore not without significance that the
Government chose the middle of March to launch an attack on Yenan
and capture the already largely evacuated Communist capital. The
military claims of the Government subsequently proved to be ex-
aggerated, but the psychological effect in non-Communist China at a
critical point was important. From a strictly long-range military
standpoint, the capture of Yenan served principally to over-extend
Government lines and drain the national economy. The Ambassador
commented as follows on this subject :

“Although the Government claims it routed over 100,000 Com-
munist troops, this appears to be a gross exaggeration since Ameri-
can observers during the return of Communist mediation personnel
reported the virtual evacuation of Yenan. It has long been apparent
that the Communists have prepared well for this eventuality and
that they never had any real intention of defending Yenan should such

238

U. S. RELATIONS WITH CHINA

action appear to be costly. Rather it is more in keeping with their
long developed tactics to evacuate any given point in the face of enemy
pressure, draw him into a pocket, and thereafter gradually sap his
strength with guerrilla tactics. Furthermore, Government lines are
seriously extended into territory which can be counted upon to be
hostile in all respects.”

Indicative of Government confidence in a settlement by force was
the public claim by the Chief of Staff at this time that the Com-
munists would be defeated in six months. Coincidentally, the Gen-
eralissimo told Dr. Stuart that by the end of August or the beginning
of September the Communist forces would either be annihilated or
driven into the far hinterland.

STUDENT DEMONSTRATIONS

It was symptomatic of the growing popular discontent that May
and J une should witness the most serious outburst of student demon-
stration and violence since the end of the war against Japan. In
every major academic center of China students, for the most part
with much sympathy from University faculties, went on strike, de-
manding an end of the civil war, effective action by the Government
to improve national economic conditions and relief for their own in-
creasingly desperate economic plight. Numerous deaths resulted from
these demonstrations and it was only because of skillful handling of
the situation in such key areas as Peiping and Shanghai by certain
key individuals and the opportune ending of the school year, which
permitted the Government to close the universities for the summer,
that more serious disturbances were avoided. The Government was
no doubt concerned over the implications of these disorders as indi-
cative of mounting popular discontent. The situation was further
complicated by a series of relatively minor but potentially dangerous
rice riots coming at a time when the new crop had not yet been har-
vested and the stocks of the previous year were rapidly being ex-
hausted. 6

The Ambassador reported as follows on May 29 :

“Over-all political scene which continues to be dominated largely
by the economic and military situation, is deteriorating at an accel-
erated rate. Within recent weeks existing bad rice situation, brought
about in the main by military requirements and hoarding, has added
to the spreading unrest. On May 18 the Government issued an edict
prohibiting student demonstrations which was immediately disobeyed
in major urban centers and has resulted in further loss of prestige by

a See annexes 121 and 122 for Embassy reports of May 20 and June 4, 1947.

AMBASSADORSHIP OP JOHN LEIGHTON STUART

239

the Government. At the present time the students are actively
agitating for a nation-wide general strike to commence June 2, but the
student movement has thus far been characterized by considerable in-
decision and has not fallen under the control of any single group or
party. There are strong indications, however, that the student move-
ment will assume larger proportions and eventually come under the
leadership of anti-Government groups, particularly of the Democratic
League if not the Communists. . . .

“As general unrest and disillusionment increases, Communist pres-
tige is enhanced, largely through recent military successes in north
China and Manchuria. Although completely reliable information is
not yet available, it is reasonably clear that in Manchuria the Central
Government has suffered reverses along the Chinese Changchun Rail-
way and at least a partial Government withdrawal in the Northeast
may become necessary. Recent Communist military activities in Man-
churia have been well coordinated with large-scale raids on north
China and Jehol rail lines assisted in a large degree by the military
blunderings of General Tu Li-ming. An important aspect of the
north China situation is the evident Communist capability of dis-
rupting communications between the Kailan mines and the sea which
will have continual effect upon the coal supply situation, especially
for Shanghai.

“Although anti-civil war sentiment is increasing, largely among stu-
dent, academic and business groups, it has thus far not reached a point
where it will be decisive in influencing the Government as evidenced
by the character of the two statements issued by the Generalissimo this
week. The fact that he felt called upon to issue any statement speaks
for itself. One indication that there is growing sentiment among
liberal Kuomintang members of the Government for peace negoti-
ations was a resolution presented to the Legislative Yuan recently by
some twenty of its members, calling for the resumption of peace talks
and reportedly having the tacit approval of Dr. Sun Fo. On May 27,
the PPC adopted a resolution to invite the Communists to resume
peace talks which can be interpreted as largely a Kuomintang ma-
neuver stemming from recent military reverses and growing anti-
civil war sentiment, and designated to pin sole responsibility for con-
tinuation of the civil war on the Communists. In the face of Com-
munist military successes, it seems unlikely that the Communists
would be prepared to join in peace talks except on terms much more
favorable than the Government is apparently now willing to accept.

“Nor is there any basis for believing that the Communists do not
regard time and tide as working for them or that they would be
willing at this time to accept equitable and feasible proposals.

240

U. S. RELATIONS WITH CHINA

“For the immediate future the gravest danger to the Government
would result in this atmosphere if disaffection commences among
National troops with the Government unable to supply adequate
rations. There has been fairly steady deterioration of morale in the
Government forces, especially in the Northeast, but for the time being
it is believed that the Government can hold the loyalty of the best
trained and equipped troops. It may be anticipated that Government
efforts will be bent towards supplying these troops adequately and in
expectation that civilian unrest can be held in check or quelled by a
show of force.”

CONTINUED DETERIORATION OF THE GOVERNMENT’S POSITION

The Ambassador further reported on June 7 as follows :

“It is obvious that the Government faces in Manchuria the proba-
bility of a military debacle of large proportions. It has already
withdrawn from substantial areas previously under Government con-
trol. J udging from the ineptitude and incompetence thus far demon-
strated by General Tu Li-ming, it is probable that the Government’s
defeat may assume even larger proportions. It seems to lie within
the Communists’ power either to continue to bleed the Government’s
strength in Manchuria or to force further Government withdrawal.”

It was also symptomatic of popular uneasiness and confusion that
the People’s Political Council, which had played such a significant role
during the war against Japan as a sounding-board of public opinion,
should on May 26, in its last session before it passed out of existence,
pass by a large majority a resolution inviting Communist representa-
tives to come to Nanking for discussions on ways and means of bring-
ing about the termination of the civil war. The Embassy pointed out
that this resolution represented the growing discontent of Chinese
intellectuals with the Government and the mounting demand for some
kind of a peace settlement. 7 The People’s Political Council at the
same session, however, passed a resolution demanding continuation of
the punitive action against the Chinese Communists.

The invitation of the People’s Political Council was promptly and
summarily rejected by the Communists as another evidence of Gov-
ernment insincerity. The Ambassador on June 18 reflected popular
speculation on further developments in the following report:

“President Chiang believes that he had conclusive evidence of a
Communist plot to create widespread disorders on June 2 and is no
less convinced that the measures taken thwarted this. He unquestion-
ably over-estimated the Communist influence in the recent student

7 See annex 123.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

241

demonstrations and probably realizes this now himself. There were
divergencies in what occurred in the principal cities. The tragic
death of three students in Wuhan University and the serious wound-
ing of three others, together with a number of minor casualties were
on the initiative of the Hankow garrison commander, who has been
summarily dismissed.

“The PPC peace resolutions have been presented through the Stand-
ing Committee of that body to the State Council, which approved
them in principle but has asked that they be made more concrete for
final action at the next meeting of the State Council. . . .

“In contrast with almost all the other high officials President Chiang
is maintaining his calm self-control and a somewhat sobered confi-
dence. There is a general feeling of frustration among the others due
primarily to the objective facts with which they are all familiar but
intensified by the nervous fear of the Communists. . . .

“It requires a certain temerity to attempt any forecasts, but it would
seem that one of three possible consequences will follow without much
delay from the present critical conditions:

“1. President Chiang will assert himself as the leader of an attempt
to settle the Communist issue either by securing their assent to renew
negotiations or by demonstrating that they are in effect an armed
rebellion and as such opposed to the national welfare. I have been
hoping that he would be able to do this in a dramatic, revolutionary
way that would catch the imagination of his people. This is probably
expecting too much, but he has gone so far in discarding his earlier
preconceptions and adopting progressive ideas that I believe he can be
influenced to further advance. This will perhaps be slower and much
less satisfactory than a more spectacular procedure but it has real
possibilities and is perhaps by all odds the most hopeful solution.

“2. With the threatening catastrophe drawing closer it is quite
possible that a nucleus of enlightened, non-partisan leaders may
emerge who will attract the more liberal elements from within the
Kuomintang, be supported by the politically conscious public and
come to terms with the Communists. President Chiang would pre-
sumably disappear from the scene, Premier Chang Chun, T. Y. Soong,
or some other outstanding figure might assume leadership, and an ad
interim coalition government be established. Among the disadvan-
tages would be the inexperience of the new group and the inability,
especially conspicuous among Chinese, of a loosely-formed body to
cooperate effectively.

“3. There will be complete disintegration of the present Central
Government with the Communists in control of their own territory,
which they would use every effort to extend. Sectional governments

242

U. S. RELATIONS WITH CHINA

would be established under the strongest man or group in the area
with all the evils of such chaotic and unstable conditions.”

Evidence of growing deterioration in the general situation and of
increasing popular dissatisfaction with the Government and its con-
duct of the civil war was being received not only from the better-
known urban centers such as Shanghai, Nanking and Peiping, but
was also disturbingly obvious throughout all sections of the country.
Perhaps the most disturbing report received by the Embassy came
the last week in June from the American Consul General in Mukden.
He reported the gradual worsening of the Government’s military
position, personal sqtiabbling between military commanders, growing
Communist initiative which kept Government forces disorganized
and off-balance, the tightening of the economic situation and the slack-
ening popular morale, which made the local populace increasingly
receptive to almost any change which might offer some prospect of
stabilization. It was a picture of Government corruption, inefficiency
and aimlessness in the face of a major disaster. 8

The downward course of the economic and financial situation in
China during 1947 is described in more detail in chapter VIII, where
the question of further extension of aid by the United States is
also discussed. It was impossible for the United States Government
to consider that question apart from the problem of reforms in the
Chinese Government, since without such reforms no financial aid could
provide a remedy.

II. AMERICAN EFFORTS TO ENCOURAGE
REFORMS BY THE CHINESE GOVERNMENT

During the war against Japan the United States endeavored to
encourage the Chinese Government to effect various reforms which
would serve to strengthen the Government and thus contribute to
the fight against a common enemy as well as lay the foundation for
stability and progress in the post-war period. At the request of the
Chinese Government, the United States Government sent American
advisers and technical experts to China to assist the Chinese Govern-
ment in various fields, such as soil conservation, public health, coop-
eratives, animal husbandry, industrial production and medicine.

AMBASSADOR STUART’S REPORTS

During the period of General Marshall’s mission to China, both he
and Ambassador Stuart repeatedly emphasized to the Chinese Gov-
ernment leaders the desirability and also the necessity of formulating

* See annex 124.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

243

and carrying out measures of reform which would improve govern-
mental administration and efficiency, win for it popular support and
confidence and contribute to the effective use of American aid.

Following General Marshall’s departure from China and in con-
tinuation of his efforts, Ambassador Stuart took every opportunity,
in conversations with Government leaders, to stress the need for action
by the Government which would result in the emergence of liberal
elements to positions of leadership, the lessening of the influence of
the reactionary group and the carrying out of basic measures of reform.
It was felt that only through such action could the Government suc-
cessfully meet the challenge of the Chinese Communists and be able
to prevent dissipation of its own resources and to make effective use
of American aid.

In the light of these considerations, great importance was attached
to the outcome of the efforts and plans being made for reorganization
of the Government. The Third Plenary Session of the Central
Executive Committee of the Kuomintang met during March and its
meetings gave some indication of the struggle for power between
conservative and liberal factions of the Party. The two principal
points of interest were (1) the efforts of certain factions within the
Kuomintang to obstruct reorganization of the Government and (2)
the struggle for power and position between the reactionary CC
Clique and the loosely knit Political Science Group. On the first
point, the Generalissimo, supported by the liberal elements, was
successful in blocking the drive to stop reorganization. In the
struggle between factions, the Generalissimo emerged in a stronger
position than before, but at the same time the CC Clique continued
in control at all levels of the Party machinery.

This intra-Party struggle for personal power occurred against the
background of the deterioration of the Government’s prestige and
position and apparently without regard for its effect on the Govern-
ment and unity of purpose. The Ambassador commented on March 12 :

“Evidence of CC Clique expansion into the financial field will not
increase banking and business confidence in the Government — it is
also additional evidence of the Generalissimo’s tactics of not allowing
any one group to gain exclusive control over the finance of the
country.’’

The Ambassador pointed out on April 5 some of the difficulties
connected with the efforts for governmental reorganization and the
Generalissimo’s part therein :

“The tragic paradox of his position, of which he may be unaware,
is that he is being compelled by circumstances to utilize the quali-

244

U. S. RELATIONS WITH CHINA

fications which the CC Clique can offer. At the same time this Clique
exploits its preferred position to render more firm its hold on the
Party and the country; and with time the Generalissimo, therefore,
may well become less and less able to dispense with them or to cir-
cumscribe their activities which can only serve to aggravate those
social conditions basically giving rise and strength to the Communist
movement.” 11

The Ambassador also commented :

“The Foreign Minister remarked the other day on the irony of a
situation where the Generalissimo, having been made self-conscious
about his ability to dictate a political settlement and consequently
reluctant to use bludgeoning tactics, finds himself in endless political
dickering which only delays that reorganization which his liberal ad-
visors have been urging on him.”

The Ambassador also reported that the CC Clique was attempting
to build itself up in the popular mind as the truly liberal and revolu-
tionary element of the Party; that the CC Clique was putting its
main effort into preparation for the elections which would precede
the coming into effect of the constitution on December 25, 1947 ; and
that preparations were proceeding for the termination of political
tutelage.

The Central Executive Committee of the Kuomintang issued a
manifesto on March 24 prior to the conclusion of its session. This
manifesto did little to clarify the situation beyond general state-
ments on broadening the basis of the Government, removing obstacles
to national unification, stabilizing the national economy, striving for
world peace and building up the potential strength of the country
for national reconstruction. 1 *

REORGANIZATION OF THE EXECUTIVE YUAN AND STATE COUNCIL,
APRIL 17, 1947

On April 17 the reorganization of the Executive Yuan and the
State Council was announced, with General Chang Chun as Presi-
dent of the Executive Yuan or Prime Minister. At the same time,
Dr. Sun Fo, son of the founder of the Chinese Republic, was elected
Vice President. Nominations by the Generalissimo for the other
four Yuan showed no change. A series of official statements accom-
panied this completion of the reorganization. President Chiang, in
a statement on April 18, hailed the reorganization as another step
in the ending of political tutelage and again offered the Communists

11 See annex 125.

13 See annex 126.

AMBASSADORSHIP OF JOHN LEIGHTON STUART 245

an opportunity to participate in the Government if they would
abandon their policy of seizing power by force. At the same time the
political program of the National Government was announced, which
largely followed the earlier outline of the manifesto of the Central
Executive Committee of the Kuomintang, with the addition of guar-
antees for civil liberties. On April 23 the Minister of Information
in his weekly press conference made a similar announcement on be-
half of his Government that the Kuomintang had ended the period
of political tutelage. The same evening the new Prime Minister,
General Chang Chun, pledged himself and his Government to the
fulfillment of the obligations which the Government had undertaken
publicly during the preceding days. 1 *

In commenting on the reorganization of the Government, the Am-
bassador stated that it was too early to assess with any accuracy the
eventual effect of the State Council reorganization and that any such
assessment must be approached with caution in the light of a series of
past Chinese Government reorganizations which had been largely
for external effect and had brought little effective change to the
Chinese domestic scene, even though the majority of Kuomintang
members were forward-looking modern Chinese. The Ambassador
further stated :

“In summary, the composition of the State Council is as regards
the Kuomintang and independents as good as could be expected in
the circumstances. Whether or not the State Council, which will con-
stitute itself on April 23, if its members can reach Nanking by that
date, will assert itself in such a manner as to bring about substantial
social and economic reform in China remains, of course, a question
depending upon many factors, not the least one being the attitude of
the Generalissimo toward it and his ability to control the Kuomin-
tang as the still dominant political party in China.”

The Ambassador noted with some concern the establishment at
this time of a separate Kuomintang political committee, the secre-
tary general of which was Chen Li-fu, the leader of the CC Clique,
and pointed out that it was a safe assumption that this committee
would have an important role in controlling the Kuomintang po-
litical machine and establishing party policies. He concluded:

“In final analysis the major imponderable is whether or not the
Generalissimo will be capable of seeking and being guided by the
advice of liberal-progressive public servants rather than acceding to
the reactionary henchmen personally loyal to him.” 14

18 See annex 127 (a) -(d) for full text of statements.

14 See annex 128.

246

U. S. RELATIONS WITH CHINA

While the governmental reorganization was a step in the right
direction and gave some hope for improvement, the behind-the-scenes
political maneuvering for power without regard for the position of
the Government itself continued to hamper efforts toward improve-
ment in administration. This disunity and the political machinations,
despite the serious situation with which the Government was con-
fronted, were reflected in the circumstances surrounding the student
demonstrations which occurred on a nation-wide scale in May. The
Ambassador’s comment on these demonstrations evidenced their
character :

“Leadership and motivation of the demonstrations have shown defi-
nite signs of changing. Most competent observers believe the original
impetus was given by the CC Clique which was desirous of inciting a
series of disorders which would in time publicly discredit a Political
Science Group-dominated Government by proving it incapable of
maintaining order, and in the long run provide the justification for
a strong-arm, right-wing government coming into power either
through a coup d’etat or through sweeping the elections to be held this
fall.”

These activities, of course, played into the hands of anti-Govern-
ment elements and as stated by the Ambassador : “It must be assumed
that the Communists are present and, if not already active, are pre-
pared to exploit the situation should it become necessary or desirable.”

On May 29 the Embassy reported on developments to the Depart-
ment as follows :

“The reorganized Executive Yuan under Chang Chun is more
strongly based than the previous T. V. Soong regime, but the political
maneuvers of the CC Clique and the pace of economic and military
developments have tied its hands to date. Furthermore, in the face of
existing problems, non-Kuomintang participants in the reorganized
Government have thus far shown no capacity for initiative. However,
outlook for next few months is not, in the Embassy’s opinion, for any
spectacular collapse but in the direction of increasing deterioration
in Government authority and control. In the meantime, general Gov-
ernment sentiment will continue to look to American aid as a means
of staving off further economic and military deterioration.”

Further indication of the need for positive measures by the Chinese
Government to restore popular confidence was contained in the Am-
bassador’s comments on the situation on June 18 :

“The growing discontent with or even hostility toward the Govern-
ment has been stimulated among intellectuals by the extremely harsh
measures against students and among the unthinking masses by the

AMBASSADORSHIP OF JOHN LEIGHTON STUART 247

mounting costs of livelihood. In its simplest terms the complaints
center around freedom and food.”

The Ambassador further commented :

“President Chiang has been thinking very earnestly both over the
situation as he is compelled to recognize its realities and over advice
given him which, so far as I can gather, has all been very much to the
same effect. In general, this is that the demand for peace is wide-
spread and insistent, and the Government should be able either to per-
suade the Communists to stop fighting and resume peace discussions or
to place the responsibility for continuing the civil war upon them,
and furthermore that the Government should win back popular con-
fidence by official statements calculated to keep the people much better
informed than they have been hitherto of the problems and intentions
of the Government. In my personal conversations with President
Chiang I have been as frank as seemed permissible and have been
cheered especially during the latest interview by what seemed to be on
his part something more than a general assent in principle.”

The Ambassador also observed :

“Actually much of the apparent strength of Chinese Communism
is due chiefly to the inefficiency and corruption of the Kuomintang
and — w ith an alarming acceleration — to popular loss of faith in the
Government. One can be reasonably certain that with sufficient evi-
dence of competent statesmanship and determined moral reforms the
Government could recover its hold alike on the intellectuals and the
masses.”

THE POLITICAL SITUATION IN MANCHURIA

The same struggle for power and the intra-party rivalry which
was hampering the National Government was vitally affecting the
Government’s position in Manchuria. During the latter half of June
the Consul General at Mukden reported as follows :

“Rivalry (if not enmity) between General Hsiung Shih-hui, the
Generalissimo’s representative, and General Tu Li-ming, Command-
ing the Northeast Combat Command, is openly discussed and the
absence of closely integrated military and economic planning is at-
tributed to it.”

The Consul General also described the attitude of Chinese Govern-
ment representatives in Manchuria and the effect upon the Govern-
ment as follows :

“Nationalist southern military forces and civil administrators con-
duct themselves in Manchuria as conquerors, not as fellow country-

248

U. S. RELATIONS WITH CHINA

men, and have imposed a ‘carpet-bag’ regime of unbridled exploita-
tion on the areas under their control. 55

He continued that the result was to make the local populace in the
countryside so antagonistic toward outsiders as to affect the morale
of non-Manchurian troops and at the same time arouse vindictiveness
in southern military officers and civil administrators. Commenting
on the food problem at Mukden the Consul General said :

“Puerile efforts have been made toward price control and to com-
bat hoarding, but in general, the results of these efforts have been
largely to enforce requisitioning of grain at bayonet point for con-
trolled prices and enable the resale of requisitioned grain at black
market prices for the benefit of the pockets of rapacious military and
civil officials. 55

It was thus inevitable that, as reported by the Consul General:

“Evidence is growing daily that the people of Manchuria are not
only prepared for but are keenly desirous of a change in government.
But what change? Most are undecided even though voluble in dis-
content of the present way of living and the trend of events. It is safe
to state that the overwhelming majority in the nation are dissatisfied
with, dislike and would welcome freedom from the present National-
ist regime. 5 ’

When on June 19 the Generalissimo summoned the Ambassador
and, after describing to him his estimate of the seriousness of the
situation in Manchuria, asked for the Ambassador’s opinion, Dr.
Stuart made the following reply :

“I replied that it might be that the time had come for him to take
emergency measures such as organizing a small but carefully selected
group to work with himself, men respected by all and able to take
responsibility as well as to form a team ; to reduce expenditures by -at
least discontinuing all measures not needed for the emergency period ;
to make an announcement to the people that if the Communist Party
finally refused the latest peace proposals the people of the country
should hold them responsible; if they wished to preserve the demo-
cratic way of life as to be effected soon under constitutional govern-
ment they should all work together to save the nation from the threat-
ened danger ; to this end all should work for the common purpose and
contribute what they could of service or wealth; the Government
should, respecting civil liberties, carry out the most immediate reforms
with the courage and ruthless impartiality required by the crisis and

AMBASSADORSHIP OF JOHN LEIGHTON STUART

249

in all such ways win back popular support or ask to be relieved of the
task ; that I had always believed that such a revolutionary program
would attract the thinking people, especially students and other sup-
posed leftists; that he should allocate responsibility (for instance,
military affairs) with a minimum of red tape, and himself tour the
country making speeches and arousing the populace to rally to the
new movement ; that with the people behind him he need not fear the
Communist military strength nor their other activities and should con-
tinue to keep the door wide open for a resumption of peace negotia-
tions; that hopelessness and defeatism were paralyzing those who
wanted to do something for the nation but under some such deter-
mined, progressive leadership they could be inspired to new hope and
effort ; and finally that I felt sure such a program would win abundant
sympathy in America and elsewhere over the world. At the end, he
said that he had been thinking along very much the same lines.”

CHINESE MOVES TOWARD REFORM

In the face of a situation calling for the most resolute and clear-
sighted action, the powerful Standing Committee of the Central Ex-
ecutive Committee of the Kuomintang on June 30 held an extraordi-
nary and previously unannounced session to discuss general Party
policy. After five hours of discussion, the Committee adopted three
resolutions: (1) to continue and expand the “punitive action against
the Communists”; (2) to draw up and put into effect plans for inte-
grating the San Min Chu I Youth Corps into the Kuomintang; and
(3) to set in motion preparations for the fall elections. Such inade-
quate measures at this critical time would have been farcical had they
not been so tragic in their implications of a lack of driving force and
determination to see the civil war through to a successful conclusion.

There was, however, apparently an awareness of the need for drastic
action on the part of the National Government, as indicated by the
resolution on general national mobilization passed by the State Coun-
cil on July 4, which stated, inter alia:

“It is proposed that the State Council order a national general
mobilization and encourage the people to help in its execution. Plans
concerning the acceleration of economic reconstruction, the reform
of local governments, the mobilization of manpower and resources,
the improvement of food and conscription administrations, the main-
tenance of social order, the mitigation of the people’s sufferings, the
protection of their basic rights, the practice of thrift, the increases
of agricultural and industrial production, and the amelioration of

U. S. RELATIONS WITH CHINA

250

the treatment of officers and men shall be carefully drafted by the
competent authorities and enforced in accordance with law. The
competent authorities shall also be instructed to guard against abuses
in the execution of those plans.” 15

This awareness was also reflected in statements made at this time by
the Generalissimo and General Chang Chun, the Prime Minister. In
an address to the nation on July 6 the Generalissimo said :

“Simultaneously, we must exert all-out efforts in effecting national
reforms and improvements. While we are suppressing the Communist
brigands with military means, the nation must also at the same time
effect internal reforms.”

The President admitted

“that the Government in itself is not perfect while in the body of the
Chinese society also are found many weak points, made all the weaker
by the Communist rebellion. But, however difficult it may be for
the nation to accomplish its goal, reforms and improvements must be
effected.”

The official Central News Agency gave the following account of
General Chang Chun’s statements on this same subject in a press
interview on July 5 : “During the period of national general mobiliza-
tion, the Government will see that all orders are faithfully and
promptly carried out,” he said. “Government officials should win the
confidence and cooperation of the people and coordination among
various Government departments should be further strengthened.
Corruption and delinquency among Government officials and armed
forces should be wiped out,” General Chang emphasized. 1511

The Generalissimo again reflected this increasing awareness of cur-
rent needs in his radio broadcast on July 7, the tenth anniversary of
the beginning of Sino- Japanese hostilities :

“Unless drastic reforms are introduced, China may not be able to
exist in the family of nations. Therefore, political, educational, eco-
nomic and social reforms, which should be made, shall not be delayed
until the conclusion of the suppression campaign, but will be initiated
right away. ... It was for the purpose of concentrating our efforts
to effect an over-all reform and remove all obstacles in the way of
national reconstruction that national general mobilization was
ordered.” 16

” See annex 129.

15 * See annex 130.

” See annex 131.

AMBASSADORSHIP OF JOHN LEIGHTON STUART 251

THE COMMUNISTS PROCLAIMED TO BE IN OPEN REBELLION, JULY 4,
1947

The resolution on general national mobilization adopted by the
State Council on July 4 also proclaimed the Chinese Communists to
be in open rebellion against the National Government and demanded
that the resources of the country be devoted to their suppression.
This part of the resolution was reinforced by statements issued
shortly thereafter by the Generalissimo and the Prime Minister, Gen-
eral Chang Chun, in which it was emphasized that the Government
was determined to carry out and make effective the national mobiliza-
tion and suppress the Chinese Communist rebellion. It is interesting
to note that the Generalissimo said, “We have never attempted to
castigate Communism as a theory or idea. . . . The Government was
willing to give full consideration to their opinions, but no peace talk
no mediation — has succeeded in dissuading the Communists from stag-
ing a rebellion.”

Thus ended a long chapter in Kuomintang-Communist relations,
begun in 1937, during which there had been alternate periods of
negotiations and military clashes. The Chinese Government had now
abandoned its previous publicly expressed policy of seeking to solve
the Communist problem by political means and was proclaiming the
Chinese Communists to be rebels against the Government’s authority
who were to be suppressed by military force.

On July 19, the Central News Agency published the text of “The
Outline for the Implementation of Mobilization to Suppress Rebellion
and Complete Constitutional Government,” which was adopted by the
State Council on July 18, to become effective immediately. Its 18
articles were general in scope but provided an adequate framework
if the Government should succeed in implementing them effectively. 17

SECRETARY MARSHALL’S MESSAGE OF JULY 6, 1947

On July 6, Ambassador Stuart had delivered to the Generalissimo
a message from Secretary of State Marshall, as follows :

“We have been following closely the situation in China and are
perturbed over the economic deterioration resulting from the spread
of hostilities. We are keenly aware of China’s needs and the Genera-
lissimo is thoroughly familiar with the general tenor of my ideas. I
cannot presume in my position to offer advice as to how he should
deal with the specific situation in Manchuria. In all frankness I must
point out that he was forewarned of most of the present serious diffi-
culties and advised regarding preventive measures.

17 See annex 132.

252

U. S. RELATIONS WITH CHINA

“In the final analysis the fundamental and lasting solution of China’s
problems must come from the Chinese themselves. The United States
cannot initiate and carry out the solution of those problems and can
only assist as conditions develop which give some beneficial results.
Please assure the Generalissimo of my continued deep personal con-
cern over events in China and of my earnest desire to find ways of
being helpful.”

In transmitting this message to the Generalissimo, Ambassador
Stuart stressed his confidence that the United States wished to assist
and strengthen China as a free nation, but pointed out that it was a
most difficult task to decide upon an effective kind of aid and methods
by which it might be rendered. The Ambassador further said that
military aid alone would not lead toward the type of development in
China which the United States held essential for China’s own good.
The Generalissimo informed Dr. Stuart that he thoroughly understood
the meaning of the message, that he had heard these points from
General Marshall when he was in China and that he was grateful for
this renewed expression.

In reply to the Generalissimo’s inquiry as to the Ambassador’s
interpretation of the message, Dr. Stuart said that he had many times
outlined to the Generalissimo the type of adjustments which were
considered prerequisites to a more positive policy and assistance on
the part of the United States. He said that the type of change which
he had in mind centered around basic reform through constitutional
institutions within the body of the Government, including the dele-
gation of more authority, the establishment and visible maintenance
and protection of civil liberties, and the actual development of a more
intimate working relationship between the Government and the people.
Dr. Stuart stated that the State Council’s general national mobiliza-
tion resolution had in some of its parts certain of the ideas for reform
which his Government thought were so necessary, but that there was
no assurance that this new order would mean more than many which
had previously been issued. The Ambassador again emphasized the
need for drastic over-all reform. The Generalissimo replied that he
understood what was meant and that he would undertake to do some-
thing along these lines as soon as possible.

AMBASSADOR STUART’S OBSERVATIONS ON NORTH CHINA AND
MANCHURIA

Following a brief trip to Peiping, the Ambassador on July 15, at
the request of the Generalissimo, described to him conditions in North

AMBASSADORSHIP OF JOHN LEIGHTON STUART 253

China and Manchuria as he found them. His report of these observa-
tions to the Generalissimo is as follows :

“Independent Chinese and American reports from Manchuria agree
that conditions are extremely serious not merely from a military point
of view but because of the hostility of the people alike toward Commu-
nists and the Central Government. Military officers of the Central
Government of all ranks are exploiting the populace, enriching them-
selves, and consequently there are stirrings of separatist feelings. I
said that it was my strong opinion that reliance on trusted local leaders
with a large measure of autonomy would strengthen the Government
position and neutralize Communist success in using these same methods.

“I said I found the north China people somewhat relieved because
temporary Government gains in Manchuria removed immediate
threat, but discontent was almost as intense as in the northeast. This
discontent seemed generally true throughout the country and was
becoming rapidly intensified.

“The Generalissimo remarked that economic conditions accounted
largely for this, to which I replied that fiscal and economic deteriora-
tion was more a symptom and that it was the general feeling of hope-
lessness and impending disaster that led to increasing military graft,
especially in Manchuria. In short, war weariness and increasing fore-
bodings were paralyzing military efforts. I smilingly charged the
Generalissimo with having used in his latest statement my own lan-
guage about a new revolution but without my emphasis on reform
and constitutional liberties, restricting his own statement in effect
to one of fighting Communists. The Generalissimo agreed somewhat
more heartily than usual with my statements and admitted that others
could see developments sometimes more clearly than he and asked
that I draft specific suggestions. In this latter connection I am taking
no action for the time being.”

On August 11, Ambassador Stuart again repeated his plea to the
Generalissimo that radical reforms be undertaken. 18 On August 19,
in a report on the situation, 19 Dr. Stuart spoke of the growing number,
both within the Government and outside it, who admitted the logic
of the pleas that the Chinese should adopt self-help measures and
put their own house in order, but who felt utterly impotent in view
of the conservatism, feudalistic ideas, selfishness, narrow prejudices
and similar limitations prevalent among those who had the power
to effect reforms. He also said that while the signs of willingness

18 See annex 139.

36 See annex 140.

254

U. S. RELATIONS WITH CHINA

and ability to institute progressive reforms were still sadly lacking
there were some such signs.

Following a brief visit to Peiping, the Ambassador reported to
the Department on September 8 his impressions of conditions in
North China as follows :

“The prevailing attitude of students, is ’. . . quite revealing,

especially when they are thought of as a rough register of the trend
in public opinion. In both Tsing Hua and Yenching Universities
the anti-Communist element is reported as certainly 90% and more
probably 95%, and the anti-Kuomintang-Government proportion as
fully 90%. In the University of Peiping, Government sympathizers
claim that the percentage opposed to the present administration is
much lower. My guess would be that these figures are a fair index
of student thinking generally over the country. The obvious con-
clusion would seem to be that the people — even the more radical and
immature — are instinctively against Communism and could easily
be won to support a truly reformed National Government. Among the
students Chiang Kai-shek, as the symbol of Kuomintang rule, has
lost greatly in esteem. To most of them he is frankly finished.

“Another impression is the extent to which Soviet inspired litera-
ture is being read by students and the unthinking way with which
they accept and quote assertions, about the United States for instance,
which are palpably untrue. If we are to undertake a program of
active assistance to China I earnestly hope that it will be accompanied
by provision for carefully planned publicity.

“Conditions in Communist controlled territory are described to
me as follows. The more intelligent country people live not so much
in actual discontent or hardship as in fear of what might happen to
them at any time. The others accept relative economic insecurity
and the regulations imposed on them rather passively. The children
are growing up with more or less enthusiasm for the existing regime
and are taught to believe all that is evil of the National Government
and America. The situation is still somewhat plastic but will become
fixed with time. There is general agreement that better local admin-
istration with complete assurance that there would be no danger of
the certain reprisals if the Communists came back would result in a
welcome for the National Government. Economic distress is widely
prevalent but there is food for everyone.

“There is great satisfaction in North China over the appointment
of General Chen Cheng to supreme authority in Manchuria and the
dismissal of Hsiung Shih-hui. The purging of army officers and other
reforms, as reported in the local press, have made a fine impression.

AMBASSADORSHIP OF JOHN LEIGHTON STUART 255

“Marshal Li Tsung-jen is gaining in public confidence. There
seems no reason to credit rumors of his disaffection toward the Na-
tional Government. Governor Sung Lien-chung complains — as
usual — of having insufficient troops under his command to cope with
the Communists in Hopei. The Mayor is working diligently to arouse
interest in the coming elections and has drafted college professors and
others to visit the different precincts of the city and give lectures on
the subject. But he is discouraged by the small numbers registering
for casting ballots. It is not clear how much of this apathy is due to
fear and how much to indifference or ignorance.”

III. THE WEDEMEYER MISSION

INTRODUCTION

While the situation continued to deteriorate and popular discontent
with and criticism of the Government increased, the Chinese Govern-
ment seemed incapable of taking, or unwilling to take, effective steps
to meet the serious problems confronting it. There seemed to be
rather a feeling of apathy, defeatism and spiritual bankruptcy which
led inevitably to a complete psychological dependence upon external
aid as the sole means of solving China’s problems with little regard
to the realities of a situation in which Chinese efforts and measures
of self-help were the essential and basic need.

GENERAL WEDEMEYER’S INSTRUCTIONS

In view of these circumstances, the President on July 9, 1947, pur-
suant to the recommendation of the Secretary of State, instructed
Lieutenant General Albert C. Wedemeyer to proceed immediately to
China and Korea on a fact-finding mission. This decision was
announced on July 11.

The President instructed General Wedemeyer to

“proceed to China without delay for the purpose of making an ap-
praisal of the political, economic, psychological and military situa-
tions — current and projected. In the course of your survey you will
maintain liaison with American diplomatic and military officials in the
area. In your discussions with Chinese officials and leaders in posi-
tions of responsibility you will make it clear that you are on a fact-
finding mission and that the United States Government can consider
assistance in a program of rehabilitation only if the Chinese Govern-
ment presents satisfactory evidence of effective measures looking
towards Chinese recovery and provided further that any aid which

256

TJ. S. RELATIONS WITH CHINA

may be made available shall be subject to the supervision of repre-
sentatives of the United States Government.

“In making your appraisal it is desired that you proceed with de-
tachment from any feeling of prior obligation to support or to further
official Chinese programs which do not conform to sound American
policy with regard to China. In presenting the findings of your mis-
sion you should endeavor to state as concisely as possible your estimate
of the character, extent, and probable consequences of assistance which
you may recommend, and the probable consequences in the event that
assistance is not given.”

CHINESE REACTION TO THE APPOINTMENT

The reaction in China was mixed. Dr. Wang Shih-chieh, Minister
for Foreign Affairs, expressed the views of his Government as follows :

“The Chinese Government as well as President Chiang Kai-shek
welcome the appointment of General Albert C. Wedemeyer as special
envoy representing the President of the United States on a fact-finding
mission to China and Korea. He is a staunch old friend of China.
When he served in the China theatre during the latter part of the war,
his contributions to Sino- American collaboration and his achievement
in strengthening the China theatre were widely appreciated.

“It is my belief that his coming visit will vastly facilitate a more
complete understanding of the Chinese situation by the American
people, further strengthen Sino- American friendship and coopera-
tion and be conducive to general stabilization of the situation in the
Far East.”

The Chinese Government believed that General Wedemeyer ’s mis-
sion would result in immediate and substantial economic and military
aid. For the same reason, liberal and opposition groups were skeptical
of the mission, fearing that aid would only prolong the civil war.
Chinese Communist reaction was bitterly hostile.

GENERAL WEDEMEYER’S STATEMENTS OF AUGUST 22 AND 24, 1947

During the month that General Wedemeyer and his mission re-
mained in China they visited the principal centers of the country and
talked with a very large number of people, both in and out of the Gov-
ernment, and representing all shades of opinion and interests, as well
as with American and other non-Chinese businessmen and officials. On
August 22, in accordance with the Generalissimo’s suggestion, General
Wedemeyer delivered an address to a joint meeting of the State
Council and all the Ministers of the National Government, at which
the Generalissimo and Madame Chiang and the American Ambassador

AMBASSADORSHIP OF JOHN LEIGHTON STUART

257

were also present. In this address he was strongly critical of the mili-
tary effort of the Government and of the corruption and inefficiency
prevalent in its ranks. He said in substance that the National Gov-
ernment could not defeat the Chinese Communists by force but could
win the loyal, enthusiastic and realistic support of the Chinese people
only by improving the political and economic situation immediately.
He stressed that the effectiveness and timeliness of these improvements
would determine whether the National Government would stand or
fall. 20 Although the General prefaced and concluded his remarks with'
expressions of genuine friendship for China, Ambassador Stuart
reported that those present at the gathering, predominantly of the
old scholar class, generally regarded the remarks as offensive. Presi-
dent Chiang was also apparently offended and, in bidding the General
farewell, chided him for allegedly refusing to see certain groups of
substantial persons in the cities visited. General Wedemeyer, how-
ever, protested his desire to see as many different types as his schedule
permitted. President Chiang also renewed his request that the Gen-
ral provide him with a list of names of Chinese with large financial
holdings abroad, but General Wedemeyer felt that since the names had
been given him in strictest confidence, he would have to refuse.

General Wedemeyer reinforced his views by a statement issued
at Nanking on August 24 at the time of his departure from China:

“In China today I find apathy and lethargy in many quarters^ In-
stead of seeking solutions of problems presented, considerable time
and effort are spent in blaming outside influences and seeking outside
assistance.

“It is discouraging to note the abject defeatism of many Chinese,
who are normally competent and patriotic and who instead should be
full of hope and determination.

“Weakened and disrupted by long years of war and revolution,
China still possesses most of the physical resources needed for her
own rehabilitation. Recovery awaits inspirational leadership and
moral and spiritual resurgence which can only come from within
China. . . .

“ . . . the existing Central Government can win and retain the un-
divided, enthusiastic support of the bulk of the Chinese people by re-
moving incompetent and/or corrupt people who now occupy many
positions of responsibility in the Government, not only national but
more so in provincial and municipal structures.

“There are honorable officials who show high efficiency and devo-
tion to duty, who strive to live within ridiculous salaries and such

30 See annex 133.

258

U. S. RELATIONS WITH CHINA

private means as they possess, just as there are conscientious business-
men who live up to a high code of commercial ethics. But no one will
misunderstand my emphasis upon the large number whose conduct
is notoriously marked by greed, incompetence or both.

“To regain and maintain the confidence of the people, the Central
Government will have to effect immediately drastic, far-reaching
political and economic reforms. Promises will no longer suffice.
Performance is absolutely necessary. It should be accepted that mili-
tary force in itself will not eliminate communism.” 21

CHINESE REACTION TO GENERAL WEDEMEYER’S STATEMENTS

The reaction in China to General Wedemeyer’s statement of August
24 was in general unfavorable except among the liberal opposition
groups. Typical of the reaction was an interview given by the
Prime Minister to the United Press in which he charged that Gen-
eral Wedemeyer had failed to understand the situation in China and
had not impartially sought his information. 22 The announcement
of General Wedemeyer’s Mission had led to expectations of imme-
diate aid and the effect of his speech to the State Council meeting
and his parting statement had served to dispel hopes of sub-
stantial assistance and had in turn caused resentment. The Chinese
Communists, apparently fearful of American aid, were also bitter
and in a broadcast of August 28 attacked General Wedemeyer in
strong terms. 23

Ambassador Stuart reported that on August 25, his own personal
secretary, Philip Fugh, had been quizzed by the Generalissimo re-
garding the background of the Wedemeyer Mission, as to why it was
regarded as necessary, and whether it meant that the United States
wished to force his (Chiang’s) retirement or removal. This inquiry
may have been prompted by General Wedemeyer’s reference to the
need for “inspirational leadership” in China. Ambassador Stuart
concluded that the General’s talk had been a “rude shock to the Chinese
Government,” but he felt that “most politically conscious non-parti-
san and liberal Chinese undoubtedly largely endorse all that the
Mission has said.” 24

General Wedemeyer was seriously concerned at the reaction to his
final press statement and to his talk before the State Council. A letter
which he wrote to the Ambassador on August 30 indicated his surprise
at the reaction :

21 See annex 134.

22 See annex 136.

23 See annex 137.

* For full text of the Ambassador’s report, see annex 141.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

259

“The members of my mission and I have carefully perused the
Chinese and American reaction to our final press statement. You
know and the Generalissimo should know that the objective was to
assist him in instituting reforms and reorganizing his government to
facilitate economic and political stability. You can reassure him that
all the members of my mission are friendly to China.

“As far as the reaction to my talk before the State Council and
the Ministers is concerned, the Generalissimo asked me to make this
talk and urged complete frankness. The Generalissimo’s Secretary
strongly reiterated that the Generalissimo wanted a frank appraisal
of my observations. You personally confirmed my hope when we
were returning from the talk that my frank appraisal was sorely
needed and was well received. You added that my statements were
made courteously and with due regard for the sensibilities of those
venerable officials who were present.

“The members of my Mission again join in thanking you and the
members of your staff for the assistance and courtesies they received.”

General Wedemeyer on September 8 repeated his concern over the
reaction in a letter to the Secretary of State as follows :

“Reference is made to Ambassador Stuart’s resume of my talk to
assembled Chinese officials, including the Generalissimo, members of
State Councils, and Ministers. The Generalissimo strongly and re-
peatedly urged this talk and Ambassador Stuart concurred. At the
conclusion the Ambassador stated that if my Mission served no other
useful purpose, the value of the talk fully justified the presence of the
Mission in China. I was particularly careful in presenting the data
in a courteous manner in order not to offend the finer sensibilities of
the venerable gentlemen and high officials present. I emphasized
that I made the talk upon the repeated request of the Generalissimo
to whom I had previously related observations. I refrained meticu-
lously from any hint or suggestion concerning my conclusions or pro-
jected recommendations. This visibly piqued and disappointed Chi-
nese officialdom. I prefaced the talk with the statement that I was
appearing before the assembled officials as a friend and not as a Presi-
dential envoy. My action requires no defense or apology. However,
the above information appears pertinent in the light of Ambassador
Stuart’s messages concerning the subject and also in view of both fa-
vorable and unfavorable Chinese reactions.”

Prior to his departure the Chinese Government had handed Gen-
eral Wedemeyer a memorandum setting forth an account of Kuomin-
tang accomplishments in the thirties, a justification of the Government
position and a reaffirmation of the Government’s determination to

260

U. S. RELATIONS WITH CHINA

see the civil war through to a successful conclusion. In this memoran-
dum the Government claimed that it had already undertaken most
of the internal reforms recommended by the United States. 25

RECOMMENDATIONS OF THE WEDEMEYER REPORT

Following a brief visit to Korea, General Wedemeyer returned to
Washington and on September 19 presented his confidential report
to President Truman. 26

The controversy in the United States surrounding this Report arose
largely from the fact that the United States Government did not make
it public. The President had originally requested this appraisal of the
situation in China for his own guidance and that of the Secretary of
State and not for public use. General Wedemeyer’s analysis of the
situation in China was in general similar to that submitted to the De-
partment of State in numerous reports by the American Embassy and
American consular officers in China and by General Marshall himself.
Among the recommendations of the Report, however, was one require-
ing immediate action by the United Nations to place Manchuria
under a Guardianship of Five Powers including the Soviet Union,
or a United Nations Trusteeship. It was the conviction of the Presi-
dent and the Secretary of State that any such recommendation, if
made public at that time, would be highly offensive to Chinese suscep-
tibilities as an infringement of Chinese sovereignty, and representing
the Chinese Government as incapable of governing Chinese territory.
It was also believed that it would no doubt be rejected by the Chinese
Government as it would in a sense represent at least a partial aliena-
tion of Chinese territory to a group of powers including the Soviet
Union. In any event, they believed that to place upon the United
Nations responsibility for action to implement such a recommendation
might well seriously endanger the future of that organization, which
at that time was already confronted with other grave and pressing
problems. The Generalissimo was confidentially advised by the Secre-
tary of State of the impediments this recommendation had placed in
the way of the publication of the Report, and vouchsafed no comment.

The Wedemeyer Report recommended in general that the United
States provide military and economic aid to China under a program
of assistance over a period of at least five years requiring Congres-
sional authorization. It also provided for financial assistance to
China for reconstruction projects and eventually for currency stabili-
zation, while at the same time recognizing : “The present fiscal situa-

28 See annex 138.

2a See annex 135 for full text of those portions of the Wedemeyer Report dealing
with China.

AMBASSADORSHIP OF JOHN LEIGHTON STUART 261

tion is inopportune for the introduction of a new currency or the
adoption of even an intermediate step towards stabilization.”

The Report indicated that improvement of the economic situation
through American aid should open the way for further constructive
support in the future from existing agencies, such as the Export-Im-
port Bank, the International Bank and Monetary Fund and private
Chinese and foreign capital. In its military phases the Report recom-
mended that military advice and supervision be extended in scope to
include field forces, training centers and particularly logistical agencies,
but it recognized the desirability of avoiding direct United States in-
volvement in the civil war by indicating : “Although advice indicated
above does provide advice indirectly to tactical forces, it should be
carried on outside operational areas to prevent the criticism that
American personnel are actively engaged in fratricidal warfare.”

In addition to the stipulations regarding action by the United Na-
tions, reference to which has been made previously, the Report
recommended other stipulations as precedent to United States aid :

“That China make effective use of her own resources in a program
for economic reconstruction and initiate sound fiscal policies leading
to reduction of budgetary deficits.

“That China give continuing evidence that the urgently required
political and military reforms are being implemented.

“That China accept American advisors as responsible representatives
of the U. S. Government in specified military and economic fields to
assist China in utilizing U. S. aid in the manner for which it is
intended.”

IV. INTERNAL DEVELOPMENTS IN CHINA

FOURTH PLENARY SESSION OF THE KUOMINTANG CENTRAL EXECU-
TIVE COMMITTEE

The Fourth Plenary Session of the Central Executive Committee
of the Kuomintang opened at Nanking on September 9, 1947, with the
announced purpose of consolidating the San Min Chu I Youth Corps
with the Kuomintang. There was, however, much speculation that
the Session would have a more important task. According to reliable
information the Generalissimo in his opening address, which was
largely a repetition of remarks he had made to the Standing Com-
mittee the preceding June, said that for twenty years he had been
attempting to implement the principles of Sun Yat-sen and that he
had to admit failure but was determined to continue. But he scath-
ingly denounced the Party for failing to solve China’s problems and

262

U. S. RELATIONS WITH CHINA

absolved himself from all responsibility. From this point he pro-
ceeded to charge that the members of the Kuomintang had also failed,
that the Communists had proved themselves abler and more devoted
and that without reform and rejuvenation the Kuomintang was
doomed to extinction. The Generalissimo asserted that China would
never again be dependent on the United States for assistance. He
said that China’s policy toward Japan was in line with that of the
Soviet Union, with which country China would have to strengthen its
relations, while preserving its traditional tie of friendship with the
United States. It is noteworthy that an elaborate if general program
of reform was proposed during the Session and that it was expected to
be adopted. At one of the final meetings, however, the Generalissimo
demanded that the reform program be dropped and that in its place
the Kuomintang proceed to carry out unfulfilled promises made during
the previous two years. The final manifesto of the Fourth Plenary
Session, published on September 13, 27 did not indicate any specific
accomplishments of the meeting.

On September 20 the Embassy reported its appraisal of the meeting
to the Department of State : 28 The reported reform was believed to be
related to the Wedemeyer Mission and to the desire to comply with
American requirements for assistance. The consolidation of the
Youth Corps was sought, however, in order to draw the younger
elements into the Party, and to eliminate the growing friction between
the Kuomintang and the Youth Corps. The consolidation achieved
by the meeting was reportedly not very successful, and the Cen-
tral Executive Committee accomplished very little. The Session in-
volved a sparring for position, which might lead to a purge. The
CC Clique emerged in a stronger position than previously, owing
to its control of the Youth Corps and its ability to exploit internal
and international conditions. The disappointing outcome of the
Wedemeyer Mission played an important role in the Session,
fcr it belied the expectations of the Government, which had expected
substantial aid or at least specific promises from that Mission.

In a further report on September 20 29 regarding the general situ-
ation the Embassy pointed out that the most disheartening feature
of the Chinese situation, in economic as well as in other fields, was
the overt reliance upon American aid to extricate China from its
pressing problems and a corresponding lack of self-reliance and self-
help in meeting these problems. The political, military, and economic
position of the Central Government was said to be continuously

27 See annex 142.

28 For full text of this report, see annex 143.

29 For full text, see annex 144.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

263

deteriorating, and the failure of the expected assistance from the
Wedemeyer Mission to materialize, combined with renewed Commu-
nist military activity, was intensifying a tendency to panic. Support-
ing the Generalissimo’s reference to the Soviet Union, thinly veiled
suggestions were emanating from high officials of the Chinese Govern-
ment to the effect that China might have to seek assistance from
that country, and that the Soviet Ambassador to China might be
asked to mediate in the civil war. Such talk was regarded as pri-
marily for effect on the United States, and secondarily as a reflec-
tion of a feeling of desperation among Chinese leaders. There was
also an increasing Chinese fear that the United States was tending
to shift the center of gravity of its Far Eastern policy from China to
Japan. The large-scale raid of Liu Po-cheng into Anhwei and south-
ern Honan was a matter of great concern, and the military situa-
tion in Shantung had deteriorated. The military situation in Man-
churia was said to be quiescent, but a sixth Communist offensive
was thought to be imminent. The expected Communist offensive
would probably be coordinated with one in North China. Commu-
nist radio broadcasts had stated that the offensive to “liberate”
China north of the Yangtze had been launched, but it was not thought
that this objective would be attained “within the foreseeable future.”
It was disheartening to see the Chinese reliance on the deus ex machina
of American aid, as illustrated by the presumption that the deficit
in China’s balance of payments would be met by the United States
in one form or another.

On September 27 the American Consul General in Shanghai
reported that the CC Clique there was increasing its power and
dominating the Kuomintang’s preparations to ensure that the suc-
cessful candidates in the coming election were “elite party supporters
plus such few political beggars as it may seem expedient to accept
as window dressing.” In this connection the Consul General for-
warded reports that T. V. Soong had made a bargain with the CC
Clique which involved his appointment as Governor of Kwangtung
and that H. H. Kung was presumably involved in the bargain.
Shanghai reports also indicated that the Government’s anti-Ameri-
canism at this time had been inspired by the right wing of the
Kuomintang, which found it an effective method of weakening the
Political Science group.

AMBASSADOR STUART’S REPORT OF SEPTEMBER 29, 1947

Two days later, Dr. Stuart reported to the Department as follows :

“There is not much evidence yet of success in dealing with graft,
which is becoming more prevalent in the worsening economic situation.

264

U. S. RELATIONS WITH CHINA

But President Chiang is at least trying to tackle the problem. The
Control Yuan has been given considerably more authority with instruc-
tions to exercise it in this matter. One hears constantly of those who
have been brought to trial. An instance, which is a somewhat acid
test for any Chinese official, is the son of an old and honored friend of
President Chiang, now at the head of the Postal Administration but
charged with flagrant speculation, whom President Chiang ordered
to be punished according to law regardless of all other considerations.

“The powers of the local police are being enlarged as part of the
plan for eliminating or at least restricting the activities of military
police and secret service men. . . .

“There are not a few hard-working, public-spirited progressives
in the Government who share our dissatisfaction with it and who
earnestly desire for their country all that we have expressed as our
hope for China. But their difficulties are very real. Just to mention
one of many, the members of the two minority parties brought in to
broaden the basis of the Government are showing themselves to be
even more rapacious for office and its perquisites than many of the
Kuomintang, with no improvement in administrative efficiency.
These progressives and their many sympathizers outside would be
immensely heartened by some indication of our intention to assist
them and would, in my opinion, be the nucleus through which we can
go a long way toward realizing our aims for China and for a stable
peace in this part of the world. But they do not see much hope with-
out such aid from us and any authoritative indication of our policy
would be very reassuring.”

On October 11, members of the Military Affairs Committee of the
American 'House of Representatives who were visiting in China called
on the Generalissimo. In answer to their questions he stated his belief
that the Chinese Communists were thorough-going Communists,
working in collusion with and taking orders from Moscow, and that
they constantly received supplies from Russia. He repeated his re-
quest for greater American aid and then said that “the predicament
in Manchuria was an American responsibility.” In conclusion he said
that if the Government were finally defeated it would not be because
of Russia or the Chinese Communists, but because the United States
had failed to give promised assistance at a time of desperate need.

In a report to the Department on October 29, Ambassador Stuart
found no reason to change his previous estimates. 80

30 See annex 145.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

265

OUTLAWING OF THE DEMOCRATIC LEAGUE, OCTOBER 28, 1947

Additional developments concerned the minor parties. Partly as a
result of Government pressure, and partly as an indication of dis-
sension within its own ranks, Carson Chang’s Social Democratic Party
was bitterly split during August and September and ended up as two
separate groups with consequent diminution of such influence as it
had possessed. Henceforth little was to be heard of it except for that
faction which joined with the Government and became largely a
rubber-stamp of the Kuomintang.

During September and October there were increasingly frequent
reports that the Government was planning action against the Demo-
cratic League on charges that it was subservient to the Communists.
Finally, on October 28, an official decree outlawed the League and
made it subject to the provisions of the General National Mobilization
Order of July 4. 31

The prominent leaders of the party were not arrested and, as a result
of negotiations between the League and the Government, the League
on November 6 announced its formal dissolution. 32 The Government
decree was never revoked and it was apparent that the Generalissimo
was determined to eliminate the League from public activities. 33

POSSIBILITY OF RESUMPTION OF PEACE NEGOTIATIONS

During the winter of 1947-1948 rumors of peace negotiations with
the Chinese Communists again became current. This time the pos-
sibility of Russian mediation was injected. On December 20, 1947,
General Chang Chih-chung, who had played a leading role in the
negotiations while General Marshall was in China, told the American
Ambassador that he had recently discussed the situation with the
Generalissimo. He had argued with the Generalissimo that the only
solution lay in the resumption of the PCC resolutions, but the latter
remonstrated that he could not take the initiative — though he would
not object if General Chang made cautious inquiries. General Chang
also told Ambassador Stuart that prior to his conversation with the
Generalissimo he had approached the Soviet Embassy in Nanking
for help in persuading the Chinese Communists to resume peace talks.
He had warned the Russians that China could never be won over to
Russia against the United States, and had insisted that in aiding
China the United States had no ulterior motives against the Russians.
He said the Russians seemed impressed, and in reply to their inquiry

81 See annex 146.

83 See annex 147.

33 See annex 148.

266

U. S. RELATIONS WITH CHINA

as to what they might do, he said that they might advise the Chinese
Communists to stop fighting.

On the other hand a statement was issued on December 25 by
Chairman Mao Tse-tung of the Central Committee of the Chinese
Communist Party. 34 The statement was one of triumph and confi-
dence, as well as a series of vitriolic attacks on the United States
as the great enemy of the world and the agent responsible for con-
tinuing the civil war in China.

Subsequently the private secretary to the Generalissimo confirmed
to the Embassy that the Russians had offered to mediate in the Chinese
situation. The secretary stated emphatically, however, that the
Generalissimo had not given his approval to the activities of General
Chang Chih-chung and that the Chinese Government neither desired
nor believed possible any accommodation with the Chinese Commun-
ists at that time. However, it was increasingly apparent during Jan-
uary 1948 that there were elements in the Chinese Government which
favored a political settlement. The Embassy on January 23 reported
to the Department its belief that something might come of this trend
in favor of negotiations because of the increasingly unfavorable posi-
tion of the Government, and the apparent determination of the Chi-
nese Communists to carry the fighting to Central and South China. It
was clear that responsible Chinese Government officials were also
concerned by this latter possibility.

On February 6 the Ambassador found that the Chinese Foreign
Minister was seriously perturbed over the military situation in Man-
churia. The Foreign Minister stated that he believed the renewed
attacks by the Chinese Communist forces on Mukden arose from the
Chinese refusal of the Russian offer of mediation. He told the
Ambassador that the Soviet Charge d’Affaires, acting on instructions,
had requested protection for Russian citizens in Manchuria. When
the Charge remonstrated that the Soviet Union had never given China
cause for misgiving, the Foreign Minister reminded him of the be-
havior of Russian troops after entering Manchuria in August 1945.

On March 8 the Embassy at Nanking commented as follows on
these and related developments :

“There is increasing evidence that despite the announced inten-
tion of present Government leadership to continue the civil war,
strong opposition to this policy by civil and military officials, as well
as by the general public, particularly the intellectuals, may soon
become sufficiently strong to compel present leadership to abandon
this policy in favor of negotiated peace or face the threat of being

34 See annex 149.

AMBASSADORSHIP OF JOHN LEIGHTON STUART 267

discarded. It is difficult at the moment to define precisely the scope
of this opposition or its strength, but the fact of its existence or of
its growth can hardly any longer be denied. The disintegration and
decay which has characterized all phases of the Government’s activi-
ties during the past several years continues and in recent weeks has
been accentuated. It is increasingly apparent that the Government
is over-extended militarily, with resulting inability to prevent con-
tinued economic deterioration and has reached a point where its over-
all political control is imperiled.

“The Government now exerts only a tenuous control over approxi-
mately one per cent of Manchuria and not more than ten or fifteen per
cent of that part of China proper north of the Yellow River. Between
the Yellow River and the Yangtze there are strong Communist ele-
ments and there has been infiltration even south of the Yangtze.
Government forces are hard pressed and on the defensive in prac-
tically every theater. There is increased demoralization, a fatalistic
feeling that collapse of the government is inevitable, and a decided
trend toward regionalism; each regional leader is looking about for
means to defend himself against the Communists when he can no
longer call on Nanking.

“With this alarming situation there is need for inspired leadership
which is not forthcoming. Those in control of the government seem
almost frantic in their search for solution, yet incapable of taking the
necessary initiative. Increasingly, it is the Generalissimo who must
make the decisions and he continues the slave of his past and unable
to take the drastic measures required. He may be expected, we believe,
doggedly to continue the fight with the idea that if worse comes to
worst, he can withdraw to Canton where T. V. Soong is engaged in
building a stronghold, and let regionalism again prevail. There is,
however, likelihood that opposition within the Government may not
permit this course of action. This opposition is well aware of the
perils of Soviet mediation, but appears inclined to prefer such media-
tion to a continuation of the current struggle, the only end to which
they increasingly fear will be a Communist-dominated China.

“Such a negotiated settlement would likely require the disappear-
ance from the political scene of the present dominant leadership,
including the Generalissimo. Yet, we cannot rule it out. While
present criminally inept and wasteful strategy can postpone tempo-
rarily the loss of major strategic points, it cannot do so indefinitely.
By far the greater part of the Government’s military and economic
resources have been committed to Manchuria and North China. De-
spite the scale of this commitment it has not forced, and shows no
sign of forcing, a decision on the Government’s behalf. Failing

268

U. S. RELATIONS WITH CHINA

American economic aid on an impossibly large scale, failing active
American military aid, and failing competent Chinese leadership and
planning, there may be revolt within the ranks of the Kuomintang
and acceptance of the Soviet offer to mediate in the forlorn hope that
such a compromise would give a breathing spell for regrouping, con-
solidation, and the emergence of some dynamic quality that would
again create the will to victory now lacking. The dangers of coalition
with Communists are well known to those in opposition. Most likely
accommodation would, therefore, be on a purely territorial basis which
would, in effect, be but a temporary, though perhaps prolonged, truce.
In any case, we feel it is entirely possible that non-Communist ele-
ments released by such event from the dead traditional hand of pres-
ent leadership, might rally to American assistance with a complemen-
tary possibility of the development of political, economic and spiritual
resources, which might eventuate in stable non-Communist govern-
ment in Central and South China.”

ELECTIONS TO THE NATIONAL ASSEMBLY

In the meantime, the principal internal preoccupation apart from
the civil war had been, as it would continue to be for the next
six months, the elections for the National Assembly — the Assembly
itself was to establish the first constitutional government — and the
struggle within the Kuomintang for power. This interest was mani-
fested in a series of political crises. Despite predictions and specula-
tion to the contrary, the Government held the elections late in 1947
according to schedule. In the absence of the Communists and the
Democratic League, these elections were between the various factions
in the Kuomintang and the two minor parties, the Social Democrats
and the Youth Party, which had agreed to participate. For a number
of reasons the results were slow in coming in, though there was little
doubt as to the eventual outcome. In the end it was apparent that
majority influence in the new National Assembly and the Legislative
Yuan would lie with the CC Clique, the extreme right-wing faction
of the Kuomintang. It was precisely here that the Government found
itself confronted with an ironic situation. It was publicly committed
to a certain proportional representation by the minor parties, but when
the results were tabulated it was seen that practically none of the
minor party candidates had been successful, and that they had lost to
either the CC Clique or independent Kuomintang candidates. The
Government was faced with the difficult and embarrassing necessity of
persuading successful candidates to withdraw after they had won, in
order to comply with the commitment on broadening the Government.
This was only made possible by an ex post facto declaration that only

AMBASSADORSHIP OF JOHN LEIGHTON STUART

269

those Kuomintang candidates would be considered successful who had
prior approval of the Party. This decision was later to create difficulty
for the Generalissimo at the spring meeting of the National Assembly,
which decided to rebel against his authority. Even the over-all victory
of the CC Clique would later prove, in part, illusory on a national scale.
It also became apparent that the real strength of the CC Clique lay in
its control over local administrations.

DISTURBANCES IN SHANGHAI

Early in February there was an outbreak of disturbances in Shang-
hai, attended by some loss of life and destruction of property. The
discontent this time did not center in any one particular group but
appeared to be fairly general throughout the city and to be a general
reflection of discontent with the manner in which the Government was
prosecuting the war and handling civil administration. Neither the
Embassy nor the Consulate General in Shanghai believed, however,
that these disturbances forecast any imminent over-all breakdown of
law and order, especially in view of the determined and imaginative
action by the mayor. They felt, rather, that the disturbances were
more the signs of things to come. 30

V. REDEFINITION OF AMERICAN POLICY

CONSIDERATIONS UNDERLYING THE FORMULATION OF A PROGRAM
OF AID TO CHINA

For several months prior to October 1947, the Department of State,
together with the National Advisory Council, had been making studies
of China’s balance-of-payments position with a view to its bearing on
a program of further aid to China. In the latter part of October the
Department of State began the formulation of such a program.

In this connection several basic factors had to be taken into con-
sideration : It was recognized that in the main the solution of China’s
problems must largely be a task for the Chinese themselves. A United
States program of aid to China should not be such as would place the
United States in the position of direct responsibility for the conduct of
the fighting in China or for the Chinese economy. The United States
Government could not virtually take over the Chinese Government
and administer its economic and military affairs. Any such under-
takings would have involved the United States in a continuing com-
mitment from which it would have been practically impossible to with-
draw regardless of circumstances or of Chinese Government actions.

M See annex 150 (a) and (b).

270

U. S. RELATIONS WITH CHINA

Account also had to be taken of the heavy burden of foreign aid which
the United States was assuming elsewhere and of the limitations on
the extent to which American resources could be drawn upon for
foreign aid under the peacetime organization of its economy.

Secretary Marshall reflected these considerations when, during the
hearings on the China aid program in February 1948, he stated that
an attempt to underwrite the Chinese economy and the Chinese Gov-
ernment’s military effort represented a burden on the United States
economy and a military responsibility which he could not recommend
as a course of action for this Government. Nevertheless, it was be-
lieved that the United States should do what was feasible under exist-
ing circumstances and that the proposed program of aid for China
would, as the President stated to the Congress on February 18,
1948, “assist in retarding rapid economic deterioration and thus give
the Chinese Government a further opportunity to initiate the meas-
ures necessary to the establishment of more stable economic condi-
tions. But it is, and has been, clear that only the Chinese Government
itself can undertake the vital measures necessary to provide the frame-
work within which efforts toward peace and true economic recovery
may be effective.”

The new proposal did not call for a long-term recovery program ex-
tending over 5 years, as recommended by General TVedemeyer. As
Secretary Marshall stated before the House Committee on Foreign
Affairs on February 20, 1948, “it is very necessary to have in mind
that a proposal at the present time cannot be predicated upon a defi-
nite termination for the necessity of such assistance as in the case of
the European Recovery Program.” It was evident that no long-
range recovery program could be developed until the Chinese Govern-
ment had demonstrated its capacity to take, with substantial United
States assistance, initial steps toward laying the basis for further con-
structive efforts. The Department of State’s program thus called for
aid over a 15-month period during which the Chinese Government
would have a further opportunity to take initial steps to this end.

With respect to the question of military aid, as recommended by
General Wedemeyer, the Department of State’s proposed aid program,
calling for 570 million dollars in economic assistance, was sufficiently
large to free the major portion of the Chinese Government’s own for-
eign exchange assets for the purchase of such military supplies as it
might wish to obtain from foreign sources. It was not considered
desirable that the United States embark upon a military aid pro-
gram calling for the use of United States military advisers in combat
areas or upon measures of military aid which would have led to United
States military intervention in China or to direct United States in-

AMBASSADORSHIP OF JOHN" LEIGHTON STUART

271

volvement in China’s civil strife. For these reasons, it was considered
that the Chinese Government’s requirements- for military materiel from
foreign sources should be met through purchases from its own
resources, largely freed for such use through the proposed program
of economic aid, and that the existing United States military advisory
groups in China would enable the United States to extend advice and
assistance within the framework of the considerations outlined
above.

It was against the background of these considerations that the
Department of State’s proposed China aid bill was presented to the
Congress in February 1948. The Congress passed legislation author-
izing aid for China on April 2, 1948, the title of which was the China
Aid Act of 1948. The Department’s proposals for a program of aid
to China and Congressional action on these proposals are described
in greater detail in chapter VIIL

SECRETARY MARSHALL’S PRESS CONFERENCE OF MARCH 10, 1948

Meanwhile the question of American policy toward China was
again suddenly and inadvertently raised. In an interview with
an American correspondent early in March, the remarks made
by the American Ambassador were misinterpreted to mean that
he favored a coalition government. Despite his clarification on the
following day, some confusion persisted. At Secretary Marshall’s
regular press conference on March 10, a correspondent, referring to
Congressman Fulton’s statement before the House Foreign Affairs
Committee that there had never been a disavowal of American policy
favoring a coalition government in China to include the Communists
and that this apparently was still American policy, asked the Secre-
tary if this were so. Secretary Marshall replied that the principals,
Chiang Kai-shek and the head of the Communist Party, Mao Tse-
tung, had reached a partial agreement in September 1945. Then, he
said, in November 1945 they had reached a formal agreement for a
meeting of the Political Consulative Conference, and on December 17
there had been another agreement between Mao Tse-tung and Chiang
Kai-shek, the basis of it being that it was to bring all Chinese parties
together in a discussion to endeavor to settle the problem by political
means. On December 15 President Truman had announced his state-
ment of the policy of the United States Government. Secretary Mar-
shall pointed out that the terms had been expressed in very broad
language, that is, that the Chinese should widen the basis of their gov-
ernment and give representation on a broad basis. Asked if this were
still our policy, Secretary Marshall replied in the affirmative, pointing

272

U. S. RELATIONS WITH CHINA

out that it was not intended to force the Chinese to do this on the basis
of any issues which had previously arisen.

For the background of the correspondents, Secretary Marshall
pointed out certain essential differences between the situation in
China and the situation in European countries. In China a single
party, the Kuomintang, and the Government had been practically
identical for some time. The problem of “coalition” in the European
sense, where various established parties exist, did not really arise in
the Chinese situation. What did arise was the question which the
Chinese themselves had been discussing for some time of granting
parties other than the Kuomintang, including the Communist Party,
some representation in at least the legislative branches of the Gov-
ernment. Neither the Communist nor any other party except the
Kuomintang had had any representation in the legislative branch.
The Secretary explained that, when he was in China, the Chinese
Nationalist Government was following a policy of settling its disputes
with the Communists as a political matter on the basis of negotiation
instead of using force for their suppression. He had participated as
a mediator in these discussions.

Since these remarks also were misinterpreted, the Department of
State issued the following release on March 11 :

“In view of misunderstandings that have arisen concerning the
Secretary’s statements about China at his March 10 press confer-
ence, it is pointed out that the Secretary referred to President
Truman’s statement of December 15, 1945. That statement ex-
pressed the belief of the United States That peace, unity and demo-
cratic reform in China will be furthered if the basis of this Govern-
ment (China’s) is broadened to include other political elements in
the country’. The Secretary said that this statement still stands.
When asked specifically whether broadening the base of the Chinese
Government meant we favored the inclusion of the Chinese Com-
munist Party, he replied that the Communists were now in open
rebellion against the Government and that this matter (the deter-
mination of whether the Communists should be included in the
Chinese Government) was for the Chinese Government to decide,
not for the United States Government to dictate.”

PRESIDENT TRUMAN’S PRESS CONFERENCE OF MARCH 11, 1948
On the same day, questions were put to the President at his press
conference concerning the inclusion of Chinese Communists in the
Chinese Government. The President was specifically asked whether
he still supported the statement he had made on December 15, 1945.
The President replied that this statement still stood. In answer to

AMBASSADORSHIP OF JOHN LEIGHTON STUART

273

further questions, he explained that it was.not the policy of the United
States to urge the National Government of China to take Com-
munists into the Government, but that the policy of the United States,
which had further been carried out by General Marshall on his mission
to China, was to assist the Chiang Kai-shek Government to meet the
situation with which it was confronted. He expressed his hope that
the Chinese liberals would be taken into the Government, but stated
that “we did not want any Communists in the Government of China
or anywhere else if we could help it.”

VI. CHANGES IN THE CHINESE GOVERNMENT

ELECTION OF PRESIDENT CHIANG AND VICE PRESIDENT LI TSUNG-
JEN

Events were now moving toward the first constitutional Assembly,
which was to meet on March 29 for the election of the President and
the Vice President. It was anticipated that this meeting would be a
crucial one for the Government, and the Embassy in its reports of
March 17 and March 31 saw nothing to warrant any optimism. 36
Practically the entire time and attention of prominent members of
the Government during these days were taken up with the struggle for
allocation of seats in the Assembly and, subsequently, in the jockeying
for position over the election for President and Vice President. The
struggles reached such extremes that at one point certain disappointed
aspirants to the National Assembly staged a hunger strike at a Nan-
king hotel. Actions such as this at this desperate point in the history
of the Government only served to increase dissatisfaction with and
criticism of the Government and, in particular, the Generalissimo. In
answer to this criticism the Generalissimo made it clear that he would
not accept the office of President. He offered to serve his country in
any other capacity but it was known that he was considering the
presidency of the Executive Yuan and would allow the office of Presi-
dent to become similar to that of the President of France. Early in
April, he instructed the Party to vote for Dr. Hu Shih, the distin-
guished Chinese scholar and former Ambassador to the United States,
as President, and Dr. Sun Fo, son of the founder of the Republic, as
Vice President. The immediate reaction was an almost unanimous
demand in the Assembly that the Generalissimo reverse his position
and accept the office. Bowing to the popular will which acclaimed
him as the only possible choice, he accepted. This resulted in a great

38 See annex 151 (a) and (b).

274

TT. S. RELATIONS WITH CHINA

increase in his prestige, though not sufficient to enable him to impose
his will in the vice-presidential election.

The three leading contenders for the Vice Presidency were Dr. Sun
Fo, who was the choice of the Generalissimo; General Ch’eng Chien,
one of the oldest and highest ranking generals of the army and Gov-
ernor of Hunan ; and General Li Tsung-jen, a member of the Kwangsi
Clique and for many years one of the most prominent members of the
Kuomintang. General Li had staged a highly successful campaign
and had succeeded in rallying around himself most of the liberal and
other elements in the Assembly strongly desirous of reform and
changes in the Government. Resolution of this conflict required many
days of political juggling and several ballots, but in the end General
Li won, despite all the pressure which the Generalissimo brought to
bear on recalcitrant members of the Assembly. Immediately fol-
lowing this election there was widespread hope that a genuine and
inspired reform movement would now arise to bring about those
changes which all agreed were necessary if the National Government
were to avoid disaster. In time, however, it became apparent that
nothing of the sort would happen.

General Li himself took no action, despite all rumors, and claimed
that he could do nothing because the Generalissimo still controlled the
Party machine, Government finances, and the army. It was typical
of the manner in which the Generalissimo set about disciplining the
Party rebellion that at the Presidential inauguration the newly-elected
Vice President was left entirely in the background, and when the
Presidential party drove off after the inaugural ceremonies he was
ignored. These developments did not augur well for the future of
unity in prosecuting the war against the Communists, and the hopes
aroused by the election of General Li on what was, in effect, a popular
movement for change and reform, were soon shattered . 37

THE SEARCH FOR A NEW EXECUTIVE YUAN

The struggle for power within the Kuomintang was carried over
into the search for a new Prime Minister and Executive Yuan. The
names most prominently mentioned for the premiership were those of
General Ho Ying-chin ; the incumbent, General Chang Chun ; Dr. T. V.
Soong; and the Foreign Minister, Dr. Wang Shih-chieh. The Gen-
eralissimo appears to have favored General Ho but refused to meet
his conditions. In the end the compromise selection was Dr. Wong
Wen-hao, an eminent geologist, chairman of the National Resources
Commission, and a man of unquestioned personal integrity, but totally
without political following. It was apparent that the new Govern-

87 See annex 152 (a)-(n).

AMBASSADORSHIP OF JOHN LEIGHTON STUART

275

ment was composed of loyal followers of the Generalissimo and that
he would continue to have the final word on all decisions. Public
reaction to the new Government was generally unfavorable and the
preliminary reports of the Government and the Legislative Yuan gave
little hope for confidence. 38

The Ambassador reported to the Department on June 24 as follows :

“The crucial problem is still the personality of President Chiang.
He is fully cognizant of the current deterioration. He listens patiently
to warnings as to the inevitability of disaster unless new policies are
adopted and to suggestions regarding these. He seems sincerely de-
termined to act in accordance with the theory of his new office and
under constitutional procedure. But there is actually very little change
in his methods.

“I had been hoping that with the appointment of General Ho Ying-
ch’in as Minister of National Defense the military operations would
be delegated to him with real authority and that General Barr could
work closely with him. 39 I had urged this course upon the President
and had received his assurance of agreement provided only he were
kept constantly informed. I had also discussed the matter more than
once with General Ho who heartily concurred in the advisability of
this plan and promised that he would do his best. Yet the President
has just issued an order that all operations are to be carried out under
instructions from him through the Chief-of-Staff — the incompetent Ku
Chu-t’ung !

“General Pai Ch’ung-hsi had been relieved of his post as Minister of
National Defense, presumably for helping in the election of Li Tsung-
jen. He was then offered the important task of commanding the
troops in the five provinces between the Yellow and Yangtze Rivers
and after long hesitation accepted, only to learn that he would not be
allowed to organize local militia in this area — a feature which he has
always strongly advocated — and that certain regions, such as that sur-
rounding the Wu Han cities, would be out of his jurisdiction. He
thereupon withdrew his acceptance and left in disgust for Shanghai.
The President showed no regret and remarked that this was of no
importance. He seems suspicious that the Kwangsi Clique have
designs against him and is thus alienating, or at least losing the effec-
tive cooperation of, men who by every test have been loyal both to him
and to the national cause.

“These instances of recent happenings will seem grimly familiar to
you. I have more than ever a sense of frustration in endeavoring to

“See annex 153 (a)-(e).

39 General Barr’s mission is discussed below, chapter VII.

276

U. S. RELATIONS WITH CHINA

influence the President’s thinking. I have an easy access to him and
am invited to say anything to him without reserve. No Chinese dares
to say to him what many even among his closer associates are now
thinking and they are looking to me with a pathetic expectancy. And
yet I feel impotent to accomplish anything that helps to reverse the
downward trend.

“There is a very wide-spread anti-American sentiment crystallizing
in protests against our efforts to strengthen J apan. This is being re-
vealed by the vehement attacks upon my message to the students . 40
It is rather puzzling to account for this phenomenon. To explain it
as due entirely to Communist or Soviet instigation is an oversimpli-
fication. This has of course helped to create it by skillful propaganda
and to organize it by agents planted both among faculties and students.
But there must be a receptive mood to have produced so general a
response and among so many who are normally pro-American. This
is perhaps caused in large part by a fear of Japan which began in the
closing years of the last century and has become instinctive as well as
deeper than we can readily imagine. It is aggravated by distorted
reports of our activities in Japan, including those from Chinese offi-
cial sources, by misconceptions and false inferences, by the publication
of the Draper [report on the industrial potential and reconstruction of
Japan] and similar reports, by the cynical assumption that we would
not hesitate to sacrifice China in preparing for our private war with
Russia, and of course by deliberate, unremitting and malicious propa-
ganda. Another very real factor is the all but universal dissatisfac-
tion with the present Government and the irrational but easily under-
standable association of America with its existence or its failings. The
students, more highly sensitized than other elements of the population,
are utterly dispirited and with no proper outlet for their patriotic
urgings. An agitation against America for restoring their old enemy
to a position of becoming again a potential menace has a curious appeal
under these depressing circumstances. Apart entirely from these
forebodings and their utilization by Communist and other anti-Gov-
ernment factions are the selfish and shortsighted commercial or indus-
trial groups which seek to avoid Japanese competition. The extremely
profitable and perhaps none too efficient Shanghai textile industry, for
instance, wishes to maintain for itself the Chinese and Southeastern
Asia markets. Thus 1 strangely enough the extreme left and crassly
capitalistic interests unite in disapproving our intentions in Japan.
We cannot be too careful in carrying out those intentions to give no
slightest cause for reasonable misapprehension.”

40 See below, p. 277.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

277

STUDENT RIOTS

The students, to whose attitude Ambassador Stuart referred, made
known their discontent in a series of riots and demonstrations which
extended throughout the length and breadth of the country and even
into Manchuria, wherever student groups were found. As usual, the
disturbances began in May as examination time approached, and
there were many who again thought that they would die down when
the examination period had passed. But this time there was more
substance to the agitation, and it continued with greater or lesser
intensity deep into the summer. The students had learned the lesson
of previous years of Government repression of their activities and
this time, instead of attacking the Government to reveal their dissatis-
faction with their situation, they chose to attack the Government
indirectly by protesting American policy in Japan. In this campaign
they were abetted by other groups who honestly or for ulterior reasons
disapproved of that policy. By early June the anti-American dem-
onstrations had become so violent and irrational that Dr. Stuart felt
compelled to appeal to his long relationship with Chinese academic
groups. He therefore on his own initiative issued a statement, 41 which
had a sobering effect on many of those to whom it was addressed, but
the agitators who had seized control of the movement for other pur-
poses managed to keep the disturbances going for many weeks. With
the passage of weeks, interest shifted to other and more pressing sub-
jects. On August 17 the Executive Yuan issued an order forbidding
disturbances which were calculated to give aid and comfort to the
enemy , 41a and the movement quickly collapsed.

During July the Embassy and the Consulates, in a series of reports
to the Department, had outlined in some detail the situation and their
concern with it. 42 On July 30 the Ambassador summarized his views
as follows :

“We can be quite certain that no amount of military advice or ma-
terial from us will bring unity and peace to China unless indeed there
are reforms sufficiently drastic to win back popular confidence and
esteem. That these could even be attempted by those now in power or
that the improvements could be rapid and radical enough to reverse
the prevailing attitude is scarcely to be hoped for. But without this
assurance the intention to give increased military aid ought to be
carefully considered in all its implications. Even under the most
hopeful conditions such aid would probably require some two years

41 See annex 154.

41a See annex 155.

42 See annex 156 (a) -(d).

278

U. S. RELATIONS WITH CHINA

or more from next January to accomplish its objective in view of the
basic necessity of training new divisions and of recovering lost
territory and morale.”

ECONOMIC REFORM DECREES OF AUGUST 19, 1948

In a desperate move to stem the tide of economic deterioration, the
Government on August 19 promulgated a series of drastic reform
measures, which are treated in greater detail elsewhere in this paper. 43
These measures produced a temporary boost in morale in many parts
of the country and public opinion in China initially felt that if they
were forcefully implemented there was a chance of salvaging the
situation. The test case was Shanghai, where the Generalissimo ap-
pointed his son, General Chiang Ching-kuo, as economic czar. At the
outset young Chiang gave every indication that he would carry out
his orders ruthlessly and he announced that special privilege would
receive no consideration. Before many weeks had elapsed, however,
it became apparent that he was attacking vested interests stronger
than himself. The basic fallacy of the August decrees was that they
failed to provide the necessary and sufficient measures for a genuine
currency reform or to take account of the conditions which had created
the crisis. Instead, they attempted to freeze the situation by the impo-
sition of police measures which paralyzed the economic life
of Shanghai and other urban centers and in the end further worsened
the situation of small and medium businessmen without appreciably
affecting the major operators. 4311 Repression could hold the line for a
few weeks, but as trade came to a standstill, as the note circulation
increased and as the refusal of producers to send stocks of foodstuffs
into Shanghai created an emergency food shortage, the artificial con-
trols gave way to pent-up economic pressures and the tempo of
economic deterioration reached an unprecedented rate. The military
disasters which were about to strike served to accentuate the deteriora-
tion. On November 1 Chiang Ching-kuo resigned. 44

It was symptomatic of the situation that on November 4 the official
Kuomintang organ, the Chung Yang Jih Pao , should publish an
editorial highly critical of the Government suggesting that it might
well learn something from the Chinese Communists. 45

As the situation became worse for the National Government, the
Communists in their turn not only reflected growing confidence but
also a heightened stridency in their attacks on the United States. Fol-

43 See p. 396.

43a See annex 157 (a)-(c).

44 For his statement at the time of his resignation, see annex 158.

43 See annex 159.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

279

lowing a period of seeming conciliation, they returned to their former
line that the United States was the great enemy. In so doing their
statements came more and more to resemble the Kremlin propaganda
line. 48

VII. ALTERNATIVES OF AMERICAN POLICY

SECRETARY MARSHALL’S POLICY DIRECTIVES OF AUGUST 12 AND
13, 1948

During these depressing and disastrous months the Government in-
creased its efforts to secure additional American aid, not only through
direct approach but also through publicity. Both the Embassy and
the Department of State felt an increasing need to review American
policy and to determine what, if any, changes should be made.

On August 10 the Embassy, after reviewing the military, eco-
nomic, and psychological factors of the situation, recommended (1)
that “American efforts be designed to prevent the formation of a coali-
tion government” including Communists in the light of the history of
such coalitions in other areas of the world and that continued or
increased support of the National Government was the best means to
this end, although it was possibly already too late; (2) that, if the
march of events resulted in some kind of an accommodation with the
Chinese Communists, American “influence should be used to arrange
a cessation of hostilities on a basis of a very loose federation with
territorial division which would leave as large an area of China as
possible with a government or governments free of Communist par-
ticipation”; and (3) that, in the event of a return to regionalism in
China, American economic aid be given to strengthen regional gov-
ernments so as to “permit basic anticommunist Chinese characteristics
to reassert themselves and correspondingly weaken sympathy for the
Communists.” 47

The Secretary of State on August 12, 1948, outlined the following
points for the Embassy’s general guidance :

“1. The United States Government must not directly or indirectly
give any implication of support, encouragement or acceptability of
coalition government in China with Communist participation.

“2. The United States Government has no intention of again offer-
ing its good offices as mediator in China.

49 See annex 160. For a recent statement in this vein by Mao Tse-tung, see
annex 120.

4T For full text of the Embassy’s report, see annex 161.

280

U. S. RELATIONS WITH CHINA

“Overt United States opposition to Chinese Government compro-
mise with the Chinese Communists (or even secretly expressed
opposition, which would likely become known) would at this junc-
ture provide ammunition in China for propaganda alleging that
the United States was encouraging and prolonging the civil war. It
could also mislead the Chinese Government to expect unlimited aid
which could not eventuate under the existing world situation and in
any circumstances would require congressional action. Any informal
expression of United States Government attitude toward these ques-
tions should, at this stage of developments in China, be confined to
the two points outlined above. You should, of course, overlook no
suitable opportunity to emphasize the pattern of engulfment which
has resulted from coalition governments in eastern Europe.”

On August 13 Secretary Marshall observed :

“While the Department will keep actively in mind the questions
raised, it is not likely that the situation will make it possible for us
at this juncture to formulate any rigid plans for our future policy in
China. Developments in China are obviously entering into a period
of extreme flux and confusion in which it will be impossible with
surety to perceive clearly far in advance the pattern of things to come
and in which this Government plainly must preserve a maximum
freedom of action.”

POLICY REVIEW OF OCTOBER 1948

Toward the end of October the Embassy again pointed out the con-
tinuing deterioration and inquired whether there had been any changes
in Washington. To this the Secretary replied :

“There is general agreement with your assumption that the United
States purposes in the Far East would as in the past be best served by
the existence of political stability in China under a friendly Govern-
ment, and American policy and its implementation have been con-
sistently directed toward that goal. However, underlying our recent
relations with China have been the fundamental considerations that
the United States must not become directly involved in the Chinese
civil war and that the United States must not assume responsibility
for underwriting the Chinese Government militarily and economi-
cally. Direct armed intervention in the internal affairs of China runs
counter to traditional American policy toward China and would be
contrary to the clearly expressed intent of Congress, which indicated
that American aid to China under the $125,000,000 grants 47a did not in-

47a See chapter VIII.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

281

volve the use of United States combat troops nor United States per-
sonnel in command of Chinese troops. Public statements in Congress
by leaders of the Senate Foreign Relations Committee, which initiated
Section 404 (b) of the China Aid Act, indicated that aid to China
under the $125,000,000 grants must be completely clear of the impli-
cation of the United States underwriting the military campaign of
the Chinese Government, since any such implication would be impos-
sible over so vast an area.

“Our China Aid Program was designed to give the Chinese Gov-
ernment a breathing spell to initiate those vital steps necessary to pro-
vide the framework within which the base for economic recovery might
be laid and essential for its survival. It was clear that in the main
solution of China’s problems was largely one for the Chinese them-
selves and the aid was intended to give the Chinese Government
further opportunity to take measures of self-help.

“The general basic considerations governing our approach to the
China problem were set forth in my statement before the Senate For-
eign Relations and House Foreign Affairs Committees executive ses-
sions, a copy of which was forwarded to you. The United States
Government must be exceedingly careful that it does not become com-
mitted to a policy involving the absorption of its resources to an un-
predictable extent as would be the case if the obligations are assumed
of a direct responsibility for the conduct of the civil war in China or
for the Chinese economy, or both. To achieve the objective of reducing
the Chinese Communists to a completely negligible factor in China
in the immediate future, it would be necessary for the United States
virtually to take over the Chinese Government and administer its
economic, military and governmental affairs. Strong Chinese sensi-
bilities regarding infringement of China’s sovereignty, the intense
feeling of nationalism among all Chinese, and the unavailability of
qualified American personnel in large numbers required argue strongly
against attempting such a solution. It would be impossible to esti-
mate the final cost of a course of action of this magnitude. It certainly
would be a continuing operation for a long time to come. It would
involve the United States Government in a continuing commitment
from which it would practically be impossible to withdraw, and it
would very probably involve grave consequences to this nation by
making of China an arena of international conflict. Present develop-
ments make it unlikely that any amount of United States military or
economic aid could make the present Chinese Government capable of
reestablishing and then maintaining its control throughout all China.
There is little evidence that the fundamental weaknesses of the Chinese
Government can be basically corrected by foreign aid. These con-

IT. S. RELATIONS WITH CHINA

282

siderations were set forth in my statement in February and they are
certainly no less true under present circumstances.

“Despite American aid since V-J Day, including the China Aid
Program, deterioration has continued to a point, as you say m your
report of October 22, where the present regime has lost the confidence
of the people, reflected in the refusal of soldiers to fight and the re-
fusal of the people to cooperate in economic reforms. This descrip-
tion is generally consistent with that given in previous Embassy re-
ports and Shanghai’s report of October 21, which quotes [a high Gov-
ernment official], a strong supporter of the Generalissimo, as saying
that 99 percent of the people are against the Government, and Taipei s
report of October 22 which quotes [a high official] as saying that
unless the Government gets out of office soon the people themselves

are about ready to throw them out.

“In your report of May 26 you state that the present Government
lacks the capability to halt the spread of Communism and wdl con-
tinue to lack the capability unless, as seems unlikely, it can find the
inspired leadership needed to rally people and restore to the Na-
tional armies the will to fight. You also say that the Generalissimo
cannot be expected to provide that leadership as he seems incapable of
change and gives every evidence of intention to persist in personal
rule which has resulted in the present sad state of affairs.

“Furthermore, in your report of J une 14 you described the General-
issimo’s assurance of agreement with your recommendation regarding
the conduct of military operations by General Ho Ying-chin with
General Barr’s close collaboration and his subsequent instructions to
the contrary that all operations were to be carried out under the Gen-
eralissimo’s instructions through his ‘incompetent’ Chief of Staff.

“Your report of June 22 states that it would appear that the Gen-
eralissimo’s predisposition to appoint his old and personally trusted
comrades, regardless of their proven corruption or lack of ability, to
posts of responsibility still outweighs his desire for good government.

“Your report of August 10 states there is no longer faith that the
present Government can bring a return to an even bearable standard
of living without some radical reorganization ; that without the Gen-
eralissimo disintegration seems inevitable, yet long experience with
him suggests that he is no longer capable of changing and reforming
or discarding inefficient associates in favor of competent ones; that
one would expect the Government to clutch at any means of improving
the situation but it ignores competent military advice and fails to take
advantage of military opportunities offered, due in a, large part to the
fact that the Government and the military leadership continue to de-
teriorate as the Generalissimo selects men on the basis of personal re-

AMBASSADORSHIP OF JOHN LEIGHTON STUART 283

liability rather than military competence ; and that there is awareness
of the desperate military situation yet no evidence of the will or cap-
ability to cope with it.

“In your report of August 20 you state that General Barr’s advice
to the Generalissimo on specific problems arising from the conduct of
current military operations has in general been ignored and that the
grave difficulties encountered by General Barr in the accomplishment
of his mission originate entirely in the failure of the Chinese high
command to perform its functions.

“In your report of August 10 you state we must recognize that the
present Government or any anti-Communist Chinese combination can
scarcely be expected to completely eliminate the Communist menace
by military or any other means.

“Your report of October 16 states that there are not many Chinese
who continue with conviction to support the Generalissimo except his
immediate followers and certain ranking military officers, and that
the Government, but especially the Generalissimo, is more unpopular
than ever and is increasingly denounced. You also say that it is dif-
ficult to see at this late date how any efforts on our part, short of armed
intervention on a very large scale, can avert further military disaster,
with the likelihood that coalition in some form will result.

“In your report of October 22 you say ‘our military advisers’ feel
that the Nationalist military establishment has very likely already
suffered too great losses in manpower, materiel and morale to make
any such effort successful, that there is just no will to fight left in
the Nationalist forces and that you can find no effective w T ay to change
the situation. You further state that a moral resurgence of Chinese
will to resist Communist aggression is required and that the requisite
leadership just is not available.

“The foregoing picture of the China situation and its possible de-
velopments is generally borne out by some fifteen other Embassy
reports between May and October. This appraisal is also borne out
by other information reaching the Department, such as Tientsin’s
report of October 14.

“Recent Nationalist military reverses support the foregoing pic-
ture. Tsingtao’s report of October 1 states that the majority of Gov-
ernment troops at Tsinan did not want to fight, while those that did
fight found their position made impossible by the disaffected, and that
the Government forces at Tsinan had ample ammunition and food,
and assurance of further supplies in the event of a protracted siege.
Mukden’s report of October 19 gives a similar picture of the fall of
Chinchow, stating that the early collapse of Chinchow’s defenses was
caused by the defection of two divisions of the Government’s 93rd

284

U. S. RELATIONS WITH CHINA

Army. The fall of Changchun was similarly aided by the defection
of Government units. In each case the fall of the cities v T as reportedly
accompanied by the loss of considerable quantities of military materiel
through the defection and surrender of sizable numbers of Govern-
ment troops.

“Possibly pressing the Generalissimo for removal of incompetents
does not appear promising in the light of his recent appointment, as
you reported on October 19, of General Tu Li-ming to command in
the Northeast in the face of repeated American advice against placing
him in a responsible command. The reference to increased Jusmag
[Joint United States Military Advisory Group in China] personnel,
functions and authority after prior agreement by the Generalissimo
on the acceptance and implementation of Jusmag advice as the price
of stepped-up aid flies in the face of all previous experience of
American advisers in China. You will recall the decisions regard-
ing United States military advisers reached in my meeting with Sec-
retary Royall, Undersecretary Draper, General Bradley, General
Wedemeyer and others on June 11, when it was agreed that United
States military advisers should not be placed with Chinese units in
operational areas.

“With reference to shipments of arms and ammunition as quickly as
possible, the United States National Military Establishment is making
every effort to speed delivery of military materiel being purchased
from the $125,000,000 grants. The Department of the Army states
informally that the loading of nearly all the ammunition covered by
the Chinese request for 37.8 million dollars of arms and ammunition
is expected to be completed on the West Coast about mid-November
and the shipment should reach China by early December. Every
effort is being made to expedite the shipment of other materiel under
this program. The National Military Establishment is also endeavor-
ing to arrange shipment of all arms and ammunition which Scap can
advance and delivery of this materiel is expected to be made during
November. Authorization for the disbursement of the $103,000 ; 000
requested by the Chinese Government from the $125,000,000 grants
has been transmitted by the Department to the Treasury Department
and the latter has paid to the Chinese Government, or to the United
States Departments of the Army, Navy and Air Force, as directed by
the Chinese, $97,000,000 of this total, the balance of $6,000,000 to be
paid October 25. You will realize no means exist to extend military
aid to China other than United States assistance to the Chinese Gov-
ernment under the $125,000,000 grants.

“In summary, adoption of a course of increased aid would violate
all basic considerations underlying American policy toward China,

AMBASSADORSHIP OF JOHN LEIGHTON STUART

285

would involve the United States directly in China’s civil war, would
commit this Government to underwriting the Chinese Government
militarily and economically at a cost which it would be impossible
to estimate at a time when the United States has heavy commitments
throughout the world in connection with foreign aid programs and
would not, in the light of appraisals of the situation submitted by the
Embassy and consular offices in China over a period of several months,
achieve its avowed objectives.”

In another inquiry on October 23, the Ambassador suggested a num-
ber of possible alternatives and requested instructions :

“(A) Will we continue to recognize and support the Nationalist
Government should they be forced to move elsewhere in China because
of continuing military reverses ?

“ (B) Would we advise the retirement of the Generalissimo in favor
of Li Tsung-jen or some other national political leader with better
prospects of forming a republican non-Communist government and
of more effectively prosecuting the war against the Communist rebels?

“(C) Would we approve the retirement of the Generalissimo in
favor of some Chinese leader who could bring an end to the civil war
on the best possible terms for the Nationalist forces and the non-Com-
munist political parties ?

“(D) In the latter course would we recognize and support a coali-
tion government resulting from termination of hostilities and in-
volving cooperation with the Communists for a united China? or,

“(E) Would we give de facto recognition to such governments, the
while withholding any Eca or other support?

“I appreciate the difficulties which these seemingly hypothetical
questions pose for you and your advisers. However in the acute crisis
which I foresee for the Generalissimo and his government I feel that
I must have the benefit of your most recent thinking on the above
specific points or in more general terms if you prefer in order ade-
quately to represent the views of the United States in this critical
phase of our relations with China.”

To this, the Secretary replied as follows :

“With respect to the hypothetical questions raised by you on October
23, the United States Government cannot place itself in a position
of advising the retirement of the Generalissimo or the appointment
of any other Chinese as head of the Chinese Government. To offer
such advice is to accept responsibility for developments arising from
the acceptance thereof and inferentially to commit the United States
Government to support the succeeding regime regardless of United
States interests. The difficulty *of our position in the event the Gen-

286

U. S. RELATIONS WITH CHINA

eralissimo and his Government raise such questions is appreciated but
it is not in the national interest to vouchsafe cut and dried answers
to these oversimplified questions. . . . What can be said in answer

to your questions is that the United States Government will cer-
tainly continue to support the National Government as long as it
remains an important factor on the Chinese scene. What course
we would adopt should it move from Nanking, collapse, disappear or
merge in a coalition with the Communists would have to be decided
at the time in the light of United States interests and the then existing
situation.

“As stated in my instruction of August 13, it is not likely that the
situation will make it possible for us at this juncture to formulate
any rigid plans for our future policy in China. Developments in
China are obviously entering into a period of extreme flux and con-
fusion in which it will be impossible with surety to perceive clearly
far in advance the pattern of things to come and in which this Gov-
ernment plainly must preserve maximum freedom of action.”

In the development of his thinking on the problem facing the
United States, the Ambassador on October 28 observed to the Depart-
ment that :

“What we really object to in Communism is not its admittedly so-
cialized reforms but its intolerance, its insidious reliance on fifth
column and similar secretive methods, its ruthless suppression of all
thought or action that does not conform, its denial of individual
human rights, its unscrupulous reliance on lying propaganda and any
other immoral means to attain its ends, its fanatical dogmatism in-
cluding its belief in the necessity for violent revolution. All these
evils plus the fact that policy is directed from Moscow, apply to
Chinese Communism as truly as elsewhere. Our problem is how to
retard or expose or neutralize their influence in China.

“Evil in Communism is moral or political rather than military.
Predominance of the latter aspect in China is largely a historical
accident. Even if we had been able to assist the Chiang Government
by military means to clear an area of militant communism — which
is all we could have hoped to do at best— we would still have been
obliged to assist in educational and other processes by which the non-
Communist section would be able to demonstrate superiority of genu-
ine democracy. Otherwise, military gains would have proved self-
defeating.”

CHINESE REQUESTS FOR FURTHER MILITARY ASSISTANCE

During November, at the Paris session of the General Assembly of
the United Nations, Dr. T. F. Tsiang, then head of the Chinese Dele-

AMBASSADORSHIP OF JOHN LEIGHTON STUART

287

gation, approached Secretary of State Marshall on behalf of the
Chinese Foreign Minister to inquire regarding the possibility of the
appointment of American Army officers to actual command of Chinese
Army units under the guise of advisers and the appointment of an
officer of high rank to head a special mission. In the reply given to
this request attention was called to the inherent difficulties involved
in an attempt on the part of a newly appointed foreign official to
advise the Chinese Government regarding its courses of action even
if such an official were completely conversant with all the numerous
difficulties of the situation and the even greater difficulties for a for-
eign official not familiar with China. Dr. Tsiang also inquired as to
the possibility of expediting the deliveries of military materiel, and
was assured that all possible was being and would be done. In reply
to his inquiry regarding the desirability of an appeal to the United
Nations, he was informed that this was a matter for decision by the
Chinese themselves. 48

The Generalissimo then addressed a letter to President Truman, 49
in which he asked for increased aid on the grounds that China was in
danger of being lost to the cause of democracy. He said that the most
fundamental factor in the general deterioration of the military situa-
tion was the nonobservance by the Soviet Union of the Sino-Soviet
Treaty of Friendship and Alliance, which, “as Your Excellency will
doubtless recall, the Chinese Government signed as a result of well-
intentioned advice from the United States.” He also asked for a high-
ranking military officer as adviser, and a firm statement of American
policy in support of the cause for which his Government was fighting.

The reply of the President was delivered on November 13. 60 It
stated that all possible was being done to expedite the shipment of
supplies and repeated what Secretary Marshall had told Dr. Tsiang
regarding an adviser. The President called attention, however, to
the fact that Major General Barr, Director of the Joint United States
Military Advisory Group in China, was conversant with the current
situation and that his advice had always been available to the General-
issimo. The President adverted to his statement of March 11, 1948,
which, he said, made the position of the United States abundantly
clear. He concluded that it was with the hope of supporting the cause
of peace and democracy throughout the world that the United States
had extended assistance to the Chinese Government and that the
United States Government would continue to exert every effort to
expedite the implementation of the program of aid for China.

48 See annex 162 (a) and (b).

49 See annex 163.

60 See annex 164.

288

U. S. RELATIONS WITH CHINA

The estimate of the military situation furnished the Department by
the Embassy at Nanking on November 6 made it impossible to expect
that the appointment of a high-ranking United States military officer
could cause any change in the situation :

“We gathered together senior military personnel Jusmag and Serv-
ice Attaches, who, after discussing military situation, were unanimous
that short of actual employment of United States troops no amount
of military assistance could save the present situation in view of its
advanced stage of deterioration. Agreeing that employment of
United States troops was impossible, it was the conclusion of the group
that there w T as no military step China or the United States could take
in sufficient time to retrieve the military situation.”

From then until the end of the year high officials of the Chinese
Government approached the Ambassador in varying degrees of pessi-
mism, asking his advice and assistance. To all such approaches he
expressed assurances of continuing American sympathy but made it
clear that the American Government could not assume responsibility
for decisions which properly lay with the Chinese Government. 51

It was against this background that a new cabinet was formed in
December 1948 with Dr. Sun Fo as the new President of the Executive
Yuan or Prime Minister. 52

VIII. CHINESE DEVELOPMENTS IN 1949

PRESIDENT CHIANG’S NEW YEAR’S MESSAGE

At the beginning of the year there were rumors that the General-
issimo would withdraw from the presidency and turn over control
to the Vice President, General Li Tsung-jen. Rumors of his with-
drawal were strengthened by his New Year’s message to the nation 63
in which he indicated that the National Government would be willing
to enter into peace negotiations with the Chinese Communists and that,
if peace could be secured, he would not be concerned about his own
position.

The Ambassador on January 3 commented as follows on this New
Year’s message:

“My first reaction was favorable. It was dignified and conciliatory.
There was less abuse of the Communists than usual. In assuming

61 See annexes 165 (a)-(h).

62 See annex 166 for a series of chronicle round-up reports written by the Em-
bassy in Nanking during 1948. These informal reports give a summary account
of the over-all situation during the year.

63 See annex 167.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

289

blame for the national distress the Generalissimo was in the best tradi-
tion and in indicating his readiness either to continue or retire he was
in accord with new democratic concepts.

“But on further thought the fatal flaws reveal themselves. It was
too much a literary composition in the grand manner. It has the
gracious tone of a powerful ruler dealing with troublesome rebels. In
this it ignored unpleasant realities: the virtual collapse of military
capacity, the failure of the latest monetary measures, the almost uni-
versal desire for peace and the impossibility of it as long as he stays
in office.

“The other flaw was more serious. In a sense he has made conces-
sions but in doing so has not gone far enough. His stubborn pride,
his anger over the Communist war criminal list which he heads, the
influence of . . . irreconcilables led him to retract his forthright
decision made earlier in the week to resign and leave the Vice Presi-
dent free to adopt any policy that might seem to him to be for na-
tional welfare. Yet the pressure was too strong and his original
intention too definite for him to avoid any reference to his own will-
ingness to retire. This will destroy what ever is left of will to fight
among his troops. There was at once division of opinion among mili-
tary officers. The position taken seems to be the result of compromise
among the various groups in the Kuomintang. Each of the Gener-
alissimo’s five conditions may be taken to represent emphasis of one
of these factions. In attempting to reconcile them all he may further
intensify internal disagreements. Communist reaction can be easily
surmised. Their attitude will doubtless be uncompromising. Flushed
with success and with victory in sight they want to complete the task
of eradicating once and for all the evil influence of the Kuomintang,
precisely as Chen Li-fu and his supporters have consistently argued
regarding the Communists. Whether by this the Communists mean
only the present leadership and structural organization of the Kuo-
mintang can only be learned from their future behavior. But it will
seem that the Kuomintang at any rate must succumb to the dynamic
purpose of the Communists and because of its own shortcomings.
Once the Communists have eliminated this source of opposition they
might propose some inclusive form of coalition and attempt a politi-
cal settlement with political resistance groups in the outlying
provinces.

“In any event a movement was started on New Year’s day which
would seem to be the beginning of the end of military conflict on a
national scale.”

U. S. RELATIONS WITH CHINA

290

PRIME MINISTER SUN FO’S NEW YEAR’S MESSAGE

On New Year’s Day also Dr. Sun Fo, the Prime Minister, broad-
cast a message to the Chinese people repeating the Generalissimo’s
statement regarding the desire of the Chinese Government for peace.
Of some interest was his reference to the period of peace negotiations
in 1946 :

“You will recall that, shortly after Y-J Day, a political consultative
conference was called, which was attended by representatives of all
political parties and leading independents. The Government decided
to call this conference because it was generally realized that the coun-
try and the people needed recuperation and peace so that rehabilita-
tion work could be started. After three weeks of concerted efforts,
and thanks to the good offices of General George Marshall as Presi-
dent Truman’s Special Envoy to China, a program for the settle-
ment of all disputes was worked out.

“Had these measures been carried out at that time, all of us would
have seen more prosperity and happiness in our midst. Unfortu-
nately, all the parties concerned could not completely abandon their
own selfish ends, and the people in general did not exert sufficient
influence in promoting this peace movement.”

CHINESE REQUEST FOR FOREIGN MEDIATION

On January 8, 1949, the Chinese Foreign Minister requested the
American, British, French and Soviet Governments to act as inter-
mediaries in the initiation of negotiations with the Chinese Commu-
nist Party with a view to obtaining a restoration of peace. 54

On January 12 the United States replied to the Chinese request
in the following aide-memoire:

“The United States Government has received and has given careful
consideration to the aide-memoire delivered by the Chinese Minister
for Foreign Affairs to the United States Ambassador at Nanking on

January 8, 1949. .

“It is noted in the aide-memoire that the Chinese Government is
most anxious that the internal situation in China should not in any
way become an impediment to the progress of world peace. It is also
noted that the Chinese Government took steps immediately following
the Japanese surrender to initiate and carry on peace negotiations with
the Chinese Communist Party.

“It will be recalled that these negotiations in September and October
1945 resulted in agreement for the convening of a Political Consulta-
tive Conference, to be composed of representatives of all political

M For text of aide-memoire of Jan. 8, 1949, see annex 168.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

291

parties as well as non-party Chinese leaders, for the purpose of form-
ing a constitutional government in which all Chinese parties and
groups would be represented. It will also be recalled that subsequent
to these negotiations clashes between the armed forces of the Chinese
Government and of the Chinese Communist Party became increasingly
widespread. It was at this juncture in December 1945 that the United
States Government, motivated by the same anxiety as that expressed
in the Chinese Government’s aide-memoire under acknowledgment
with respect to the danger to world peace from the internal situation
in China and desirous of doing everything within its power to assist in
bringing peace to China, offered its good offices in the hope that a peace-
ful settlement of their differences could be achieved by the Chinese
themselves along the lines of the agreement reached in September and
October. In furtherance of that Chinese agreement and with the con-
sent of the Chinese Government and the Chinese Communist Party,
General Marshall shortly after his arrival in China on December 21,
exerted his good offices in assisting the Chinese Government and the
Chinese Communist Party to reach an agreement for a cessation of
hostilities with the hope that discussions by the Chinese of their differ-
ences could be conducted in an atmosphere of peace.

“Following the convening of the Political Consultative Conference
and its approval of resolutions providing for the settlement of political
differences and the establishment of a constitutional government to
include all parties and groups in China, General Marshall again ex-
erted his good offices in connection with the agreement reached for
the reorganization of all Chinese armed forces and their amalgama-
tion into a national army responsible to a civilian government.

“The negotiations between the Chinese Government and the Chinese
Communist Party subsequently broke down and the various agree-
ments were not implemented. The United States Government, there-
fore, after having made every effort to assist the Chinese in bringing
peace to China through implementation of the fundamental political
agreements arising out of the Chinese Government’s negotiations with
the Chinese Communist Party immediately after the Japanese sur-
render, considered that it had no alternative to withdrawal from its
position as an intermediary.

“In the light of the foregoing, it is not believed that any useful
purpose would be served by the United States Government’s attempt-
ing, in accordance with the Chinese Government’s suggestion, to act
as an intermediary in the present situation.”

The Ambassador was instructed that if he were asked any questions
he should limit his reply to the confines set by the President’s message
to Congress of February 18, 1948, and the statement by the Secretary

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U. S. RELATIONS WITH CHINA

of State to the House Foreign Affairs Committee on February 20. 55
He was also to assure the F oreign Minister of the sympathetic interest
and genuine friendship of the American people for the people of
China. On the same day, the Chinese Ambassador in Washington
called on the Acting Secretary of State to ascertain if, in the event
the Chinese request were refused, the United States would consider
issuing a statement indicating that the Chinese Government sincerely
desired a peaceful settlement. He was informed that such action
would be inappropriate. France, Great Britain and the Soviet Union
also refused the Chinese request for mediation.

THE RETIREMENT OF THE GENERALISSIMO

By the end of 1948 the Chinese Communist forces were in strength
in the Pengpu area north of Nanking and the best of the Nationalist
forces had been withdrawn through Nanking south of the Yangtze
Biver. The grave military position of the National Government was
reflected in the estimate submitted in December by General Barr,
Director of the Jusmag in China, that only a policy of unlimited
United States aid, including the immediate employment of the United
States armed forces, which he said he did not recommend, would
enable the National Government to maintain a foothold in South
China against a determined Chinese Communist advance. By the
latter part of January the Chinese Communist forces had moved to
the north bank of the Yangtze in the Nanking-Shanghai area and
were in position to attempt a crossing of the river.

On January 21 the Generalissimo issued a statement announcing
his decision to retire and left Nanking for Fenghua, his birthplace.
He declared:

“With the hope that the hostilities may be brought to an end and
the people’s sufferings relieved, I have decided to retire. As from
January 21st, Vice-President Li Tsung-jen will exercise the duties
and powers of the President in accordance with Article 49 of the con-
stitution which provides that ‘in the event the President is for any
reason unable to perform his functions, his duties and powers shall
be exercised by the Vice President.’ ”

The Generalissimo’s action was, in effect, recognition of the over-
whelming desire of the Chinese people for peace. As he stated:
“Since I issued my New Year message urging the restoration of peace,
the entire nation with one accord has echoed its unreserved support.”

On January 24, 1949, the Chinese Ambassador at Washington offi-

60 See pp. 379-380.

AMBASSADORSHIP OF JOHN LEIGHTON STUART 293

cially notified the Department of State of the Generalissimo’s decision
and of the assumption of office by Vice President Li Tsung-jen.

THE POSITION AND POLICIES OF ACTING PRESIDENT LI

On January 23 a representative of the Acting President called on
Ambassador Stuart to request a public statement of support from the
United States. This representative said that General Li had been in
touch with the Soviet Embassy and had worked out a tentative three-
point draft agreement between China and the Soviet Union which the
Soviet Ambassador had taken with him to Moscow a few days earlier.
The three points were: (1) strict Chinese neutrality in any future
international conflict; (2) the elimination of American influence to as
great an extent as possible in China; (3) the establishment of a basis
of real cooperation between China and Russia. General Li had agreed
to these three points in principle and felt that his hand would be
strengthened in negotiating on them if he had a statement of Ameri-
can support. The Department at once replied that it considered it
“incredible that Li Tsung-jen should seek a United States statement
indicating support for the purpose of strengthening his position while
at the same time arranging a tentative agreement with Russia calling
for elimination of American influence from China.” The Ambassador
was instructed to make these views known to General Li.

In the meantime, the Acting President had directed General Chang
Chun, General Chang Chih-chung and Mr. Chen Li-fu to seek a direct
approach to the Chinese Communist Party. The Acting President
also summoned an unofficial peace mission to fly to Peiping to arrange
for the subsequent reception of an official peace mission. With his en-
couragement an unofficial Shanghai peace delegation proceeded to
Peiping to discuss peace arrangements with the Chinese Communists.
The Chinese Communist Party continued to hold to its publicly an-
nounced eight-point peace terms as the basis of a settlement :

1. Strict punishment of war criminals.

2. Abolition of the constitution.

3. Abolition of the Kuomintang legal system.

4. Reorganization of Nationalist troops according to democratic
principles.

5. Confiscation of “bureaucratic” capital.

6. Reformation of the land system.

7. Abolition of “treasonous treaties.”

8. Convocation of a Political Consultative Conference with non-
participation of “reactionary elements,” establishment of demo-
cratic coalition government, taking over all authority of the
“Kuomintang reactionary government” and all its strata.

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U. S. RELATIONS WITH CHINA

These terms were equivalent to unconditional surrender, but the
Government’s condition was so serious that it felt compelled to make
an effort toward negotiation with a view to obtaining modification.

On February 5, pursuant to a decision of the Executive Yuan, the
Chinese Government moved most of its offices to Canton, although the
Acting President remained in Nanking and requested the return to
that city of the heads of certain ministries. The American Embassy
established an office at Canton headed by the Minister-Counselor to
maintain contact with those Chinese Government agencies which had
moved to that city.

After Acting President Li had assumed office, several high-ranking
Chinese Government officials, erstwhile strong supporters of the Gen-
eralissimo, approached the Ambassador to ask for assistance in dis-
suading the Generalissimo from interfering in governmental and
military affairs. They considered that the Generalissimo was ham-
pering the Acting President’s peace negotiations and various reform
measures, as well as the formulation of measures for the defense of
the Yangtze River in the event of the breakdown of efforts to reach
a peaceful settlement with the Chinese Communists. The Ambas-
sador reported these overtures to the Department with the statement
that he was, of course, taking no action with respect to these pleas.

On February 9 the Minister-Counselor at Canton reported as
follows :

“Chen Tai-chu has again approached me with respect to encourage-
ment of potential resistance elements when peace talks have failed.
He said it would be most helpful if I could meet informally with
various groups in Canton who were laboring under the impression
that we are disinterested in continued resistance and perfectly
prepared to recognize a Communist regime and talk to those groups
along the line of my conversations with him. If U. S. Government
could not make public statements at this stage, my remarks, which
would inevitably reach the press and be attributed to me, would be
helpful. I told him I would have to think the matter over.

“If the arguments I used in previous conversation with Chen and as
used in my conversation with Chen Li-fu shortly before leaving
Nanking and reported to the Department conform with thinking in
Washington, such informal meetings as those suggested might prove
beneficial to our interests. There are undoubtedly many liberal
Chinese who desperately do not want to come under a Communist
i egime, but who see no alternative unless assistance is to be forthcoming
from the U. S. I have insisted that although I could, of course, not
commit the Congress, I found it difficult to believe further assistance
would be forthcoming until there was some tangible resistance move-

AMBASSADORSHIP OF JOHN LEIGHTON STUART

295

ment giving signs of effectiveness and to which help from the U. S.
might bring success. Chen Tai-chu believes the discussions he has
suggested might encourage potential resistance elements sufficiently
that active measures would be undertaken to find a leader or leaders
capable of reviving the will to resistance in free China.

“I should appreciate urgently the Department’s instructions.”

The Department replied as follows:

“Approach described in your message is similar in nature to other
feelers during recent weeks and appear to be part and parcel of
political jockeying for advantage by various groups. In the light of
General Barr’s estimate, with which you are familiar, that in the
absence of unlimited U. S. aid, including the immediate use of U. S.
armed forces, the Chinese Government cannot maintain a foothold
in south China against a determined Communist advance, it seems
unrealistic to believe that either a public U. S. Government statement
or even statements attributed to you could serve any useful purpose.
If resistance to the Communist advance is to be effective, it must
obviously be based upon genuine Chinese effort and not upon the
issuance of statements from outside China. In any event, you will
recall the President’s reply to the Generalissimo’s message which
dealt with this question.

“In view of the continued implementation of the China Aid Act, it
is difficult to understand the impression conveyed to you that the
U. S. is disinterested in continued resistance and is perfectly prepared
to recognize a Communist regime.”

As the struggle continued between the Acting President and his fol-
lowers on the one hand and the Generalissimo and his supporters,
together with the Canton faction headed by the Prime Minister, on the
other hand, the Ambassador reported on February 20, 1949, as follows :

“The Department may care to take measures publicly or otherwise
for refuting the mistaken impressions created by press accounts of
forthcoming large scale American military aid. These reports, which
were prominently published in vernacular and English language press
in China, have the effect of inciting the Generalissimo and his irre-
concilables to re-take the leadership now in a renewed resistance move-
ment. He is already being influenced, I hear, by arguments of his
indispensability from a small group of die-hard supporters whose
motives are not entirely disinterested.

“Meanwhile the Generalissimo is interfering in military affairs, thus
hampering rather than helping the Yangtze defense. Li Tsung-jen
may eventually be sufficiently thwarted by these factors to feel forced
to retire south, prematurely abandoning peace efforts. The only hope

296

U. S. RELATIONS WITH CHINA

for public support for renewed resistance against the Communists
lies in convincing the Chinese people that the Chinese Communist
Party does not desire peace on any tolerable basis. Li is presently
endeavoring to put this to thoroughgoing test. The U. S. can, I feel,
help most at this stage by avoidance of public debate and objective
appraisal of the coming developments. The tone of the Secretary’s
recent statements on China have been very useful in this regard.”

The Department took no action on the Ambassador’s suggestion that
a statement be issued.

The Ambassador’s report of February 23 served to high-light the
difficulties with which the Acting President was confronted :

“In the struggle for power between Li Tsung-jen and the ‘Canton’
faction headed by Sun Fo, Li is in a fundamentally weak position
because he does not control the larger portion of the Army, lacks fi-
nancial resources and does not command the allegiance of that consid-
erable portion of the Kuomintang bureaucracy controlled by the Gen-
eralissimo and the CC politicians. This fundamental weakness has
been frankly acknowledged, and probably somewhat exaggerated,
by Pai’s Headquarters to the American Consulate General at Hankow
appealing for U. S. aid.

“However, he has made some preparations recently in mobilizing
popular support for his peace program. The most important single
evidence of this is the decision of the Legislative Yuan to meet in
Nanking rather than in Canton. This is, of course, in direct defiance
of the Premier’s publicly expressed wishes. At the Yuan Session,
Sun Fo is certain to be violently denounced, both for his sponsorship
of the Government move south and for speculations he is alleged to
have committed. A significant indication of the feeling of many
legislators was the press report that the legislators resident at Shang-
hai had passed a resolution accusing Sun Fo of ‘deserting’ the Acting
President and calling for the return of the Executive Yuan to
Nanking.

“Further tangible demonstrations that Li is making progress are the
meeting of the Control Yuan here and their resolution to support him,
the announcement that the Executive Yuan joint office will soon open
at Nanking, and the arrival of the Ho Ying-chin in the capital. Li
also has the backing of important newspapers in Shanghai and Nan-
king, which praise his twin program of peace and reform while con-
demning the Kuomintang for ineptitude and corruption and censuring
the Sun Fo cabinet for ‘running away’. Insofar as can be determined,
support for Li is growing among banking and business circles in
Shanghai and Nanking and among that large but inarticulate section

AMBASSADORSHIP OF JOHN LEIGHTON STUART 297

of the population who disregard the larger issues and are principally
interested in keeping the destruction of war from their homes.

“Li’s present position is similar in some ways to that he occupied
while campaigning for Vice-President. At that time he became the
symbol of revolt against arbitrary dictation by the Generalissimo and
the party and succeeded in uniting behind him all the dissident (and
often mutually incompatible) factions for the purpose of his election.
He has again become a symbol, this time a symbol of the yearning for
peace that pervades this war-weary country. So long as his peace
efforts make perceptible progress, or even succeed in delaying (or
seeming to delay) the Communist assault on the Yangtze, he should
be able to maintain and utilize for his support this mobilized public
opinion.

“Li is aware of the basic weakness of his position, but is astutely
capitalizing on the support of those who see him as the chief hope
for peace, in order either to heal the breach between himself and
the Canton group, or at least win over to his side as many as possible
of the powerful leaders in the Kuomintang. He is also endeavoring to
bolster his position in concrete ways by making overtures for U. S.
aid and planning economic and political reform. The extent to which
he succeeds in these efforts will determine his strength either as nego-
tiator with the Communists or subsequently as the leader of resistance
should the Communists renew the attack.”

On February 21 the Ambassador reported that the Acting President
had expressed to him a desire to have an American adviser for the
Ministry of Finance and also an American expert on public adminis-
tration to help reduce and reorganize the whole structure of the
Government. In view of the state of disorganization of the Chinese
Government and the lack of unity between the rival groups, the
Department of State instructed the Ambassador to inform the Acting
President that the appropriate channel for the employment of Ameri-
can advisers would be through the Chinese Embassy at Washington,
particularly since the presence in the United States of Pei Tsu-yi,
formerly Governor of the Central Bank, as Chief of the Chinese
Technical Mission, would offer the Embassy an excellent opportunity
to locate personnel with the necessary qualifications and experience.
The Ambassador was also instructed to state that the Department
would be pleased to afford appropriate assistance and facilities as
requested by the Chinese authorities.

On February 28 Acting President Li Tsung-jen forwarded the
following message to President Truman :

“Since assuming office as Acting President, I have had in mind
a message to you expressing the hope that the historic friendship

298

U. S. RELATIONS WITH CHINA

between our two countries may be maintained, and assuring you of
my appreciation for all that has been done for China under your
administration. 5 ’

The President replied as follows :

“I wish to express my sincere appreciation of your kind message
of February 28 and to assure you of my very real desire to see a
continuation of the traditional and close ties of friendship which
have existed between the peoples and Governments of our two
countries.”

The unofficial Shanghai peace delegation returned from Peiping
and issued a statement sufficiently optimistic to give encouragement
to the peace-hungry public and to strengthen the hands of those
advocating an all-out effort to obtain peace. The Acting President
succeeded in having the Legislative Yuan hold its session in Nanking
at the end of February and, following his trip to Canton, the Prime
Minister and the Vice President of the Executive Yuan, who was also
the Foreign Minister, returned to Nanking. All this signified a
temporary political victory for the Acting President and a concerted
effort to present a united front on the part of the Government to
the nation and the Chinese Communists. On March 3 it was an-
nounced that the National Government had named a ten-man peace
preparation committee headed by Dr. Sun Fo.

On March 6 the Ambassador reported a conversation with the
Chinese Foreign Minister as follows :

“He said that Lapham 66a had not been responsive to the Chinese
request for a silver loan. I pointed out that Eca had no authority in
such matters and added that it was improbable that the Congress
would feel itself in a position to make a loan to China in the light of
current circumstances.

“Wu T’ieh-chen then asked what were our anxieties re China and
the Chinese Government. I replied that these were two : (1) disunity
within the Government and (2) the lack of public support for the
Government. In response to his question if I referred to differences
between Nanking and the Canton group, I replied that this interpre-
tation was inevitable but that there was also considerable confusion
with respect to relations between the retired President and the Acting
President, that the American public did not understand what the
actual relationship between these two was. After exhausting the
usual ‘official 5 explanations, the Foreign Minister frankly admitted
that it is difficult for a man who had held power so long suddenly

6Sa Roger Lapham, Chief of the Eca China Mission.

AMBASSADORSHIP OF JOHN LEIGHTON STUART 299

to become inactive. He continued that there had been some very
serious discussions recently and that the Government leaders were
determined to start a new system centering authority in the Cabinet
which would from now on be responsible with the President being
relegated to his ‘constitutional’ status. The Generalissimo would
thus become an ‘elder statesman’ consulted on occasion but restrained
from giving orders. To make the move less pointed it is proposed that
several other of the older Kuomintang leaders would be similarly
treated. I expressed hope that there would be some success in putting
these measures into effect.”

The second week in March was marked by a cabinet crisis which
resulted in the resignation of Dr. Sun Fo as Prime Minister. The
Legislative Yuan’s resolution calling for meetings of the Cabinet at
Nanking during the period of peace efforts reduced Canton, although
it was still nominally the seat of the National Government, to a
position of only administrative importance on the national scene.
These developments strengthened the political position of the Acting
President and his efforts to unify the Government forces around him-
self. But the power of the Generalissimo continued to be felt as
was indicated by the Acting President’s sending of an emissary to
Fenghua to see the Generalissimo, by the failure of certain Kuo-
mintang leaders to accept the Acting President’s invitation to come
to Nanking and by the arrest, under orders from one of the Generalis-
simo’s loyal military commanders, of a Chinese newspaper editor
at Nanking for publication of an editorial criticizing the Generalis-
simo’s interference in governmental affairs.

IX. RENEWED CONSIDERATION OF ADDITIONAL
AMERICAN AID

RECOMMENDATION FROM TIENTSIN

On March 12, 1949, the Consul General at Tientsin forwarded to
the Department the text of a memorandum from the American Cham-
ber of Commerce at that city strongly opposing further aid to the
Chinese Government. On March 15 the Consul General commented
as follows on this memorandum :

“Americans in Tientsin who had the unhappy experience two months
ago of witnessing the capture of Tientsin by Communist armies
equipped almost entirely with American arms and other military
equipment handed over practically without fighting by Nationalist
armies in Manchuria, have expressed astonishment at radio reports
from the U. S. during the last two or three days to the effect that a

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U. S. RELATIONS WITH CHINA

bill may be presented to the Congress to extend further military and
economic aid to the Nationalist Government in the sum of a billion
and a half dollars.

“Americans in Tientsin feel the only result of further U. S. aid to a
Government which has proved so ineffective that most of our previous
aid has passed to the Communists will be to further strengthen the
Communists. They feel that the apparent retirement of the Gen-
eralissimo has had little effect on the character of the Nationalist
Government, particularly in view of the reported selection as new Pre-
mier of General Ho Ying-chin, considered the archetype of the Chinese
who have brought the National Government to its present sorry state.
They feel that our global policy of opposition to Communism should
not oblige us to support a hopelessly inefficient and corrupt government
which has lost the support of its people. They believe that at this
juncture it would be useless to extend further aid to a government
which is so far gone. They feel that the present situation must be
solved by the Chinese and that for the time being we should adopt a
hands-off policy.”

COMMENTS BY THE EMBASSY OFFICE AT CANTON

The Embassy Office at Canton on March 22 commented as follows
on the question of further aid to China which was then being consid-
ered by the Department of State.

“As I analyze the situation at the moment, we may expect the Com-
munists to continue the deployment of troops on the north bank of
the Yangtze and when they are ready to attempt the crossing we may
anticipate an announcement of their willingness to negotiate peace
on the terms they will stipulate and which may be expected to be a
reiteration of Mao Tse-tung’s eight points. Their announced willing-
ness to negotiate will likely be in the form of an ultimatum threatening
to cross the Yangtze if the terms are not accepted within the time
limit. It is unlikely that the terms will be acceptable to the Kuomin-
tang leaders although they will appear reasonable to the war-weary
Chinese masses.

“Even though rumors of Communist morale difficulties may have
foundation, it may be anticipated that the Communist troops will fight.
On the contrary, however, there appears little likelihood that the
Nationalist troops can be reinspired with the will to resist, Chang
Chun may, as he claims, be able to rally forces in the southwest to de-
fend themselves, but it will unlikely be defense of a character long
to delay the Communists, once they have determined on an advance.
There is even some thought that with the breakdown of peace nego-
tiations, the process of regional fragmentation will be accelerated,

AMBASSADORSHIP OF JOHN LEIGHTON STUART

301

with each area seeking to fend for itself, thus making more easy the
Communist task. The dissident Kwangtung Legislative Yuan mem-
bers remaining at Canton demanding defense of the constitution’ are
an indication of this trend.

“As I see it, when the Communists have deployed their troops and
issued their ultimatum and had it rejected, they may be expected to
cross the Yangtze, meeting little resistance and occupying urban cen-
ters of the Yangtze Valley. They will then have the capability of con-
tinuing their advance in the southwest or the south, overcoming with-
out too much difficulty any regional resistance they may encounter.
Whether they will proceed to the task immediately or delay for months
or years rests solely for their determination.

“In a previous telegram I suggested the possibility that Li Tsung-
jen might supply effective leadership. I am now less inclined to that
view. He has increased tremendously in stature; has greatly in-
creased his following, yet the centripetal forces in free China remain
too strong for him to overcome. The deep-seated Chinese charac-
teristic of family solidarity is too strong and we are witnessing a
frantic search by each individual to save himself and his family first,
then maybe his province, with little if any thought to the principles
involved, or the nation. Also, if, as alleged, the cruiser Chungking
has been put out of action by the Chinese Air Force, we may still see
the Generalissimo re-emerge in his Foochow- Amoy-Taiwan triangle.

“I have been chided of late by many Chinese officials, from the Vice
Premier and the Foreign Minister down, for what they term our
‘wait and see’ policy in respect to China. ... I have put forward the
arguments outlined in the Department’s letter to Senator Connally 56
and have stressed the need for the Chinese to demonstrate the possi-
bility of effective resistance to Communist expansion before expect-
ing the U. S. to make further investments in National China. In each
case I have been given the impression of utter inability of China to
cope unaided with the situation. In other words, the sole means
of turning the tide in China would, as the Department suggests, re-
quire the use of ‘large U. S. forces in actual combat, contrary to our
traditional policy and our national interests’.”

DIFFICULTIES CONFRONTING ACTING PRESIDENT LI

Following the resignation of Dr. Sun Fo, General Ho Ying-chin
was named Prime Minister, or President of the Executive Yuan.
This appointment gave the Acting President a Prime Minister of
his own choosing and served to strengthen Government unity. A new

“"For text of letter from Secretary Acheson to Senator Tom Connally on
March 15, see annex 186.

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U. S. RELATIONS WITH CHINA

Cabinet was quickly formed and steps were taken to appoint National
Government peace delegates and to propose the early opening of
peace discussions with the Chinese Communists.

The increasingly serious position of the Chinese Government was
reflected in military developments which included the fall of Tientsin
on January 15, the final occupation of Peiping on February 3, and the
subsequent National Government reverses in the Hsuchow area, thus
placing the Chinese Communists forces on the north bank of the
Yangtze where they represented a direct threat to Nanking and Shang-
hai. On March 24 the Acting President presented a draft peace
formula and the names of the Government’s official peace delegates to
the Executive Yuan for approval. On March 26 the Chinese Com-
munist Party announced the names of its delegates for the peace
negotiations, and Peiping was named as the locale of the negotia-
tions. The National Government peace delegates arrived at Peiping
on April 2, and after some informal discussion were presented by the
Chinese Communist Party with an ultimatum setting a deadline of
April 12 for the acceptance of the Chinese Communist conditions and
stating that whether in war or in peace the Communist forces would
cross the Yangtze River. This ultimatum was subsequently with-
drawn as an exchange of messages occurred between the Acting Presi-
dent and Mao Tse-tung.

On April 6 the Ambassador reported as follows :

“I referred to the analogous problem of munitions from the U. S.
with reference to a Chinese Government request for a grant of United
States silver. The Acting President and the Premier had suggested
that ships bringing the last consignments be diverted to Hong Kong or
Canton for the equipment of Pai Chung-hsi and Chang Fa-kuei. I
pointed out that there were technical difficulties in such procedures, and
that in any event it seemed unnecessary, since there were ample stores
of munitions in warehouses at Keelung. The problem in both cases was,
of course, that the Generalissimo controlled the greater share of the
national treasury reportedly stored in Taiwan and that through his
appointed Governor of Taiwan he also controlled the warehouses full
of munitions there. I added that from the record of the past three
years, there was slight hope of effective resistance to the Communists
under this leadership. I continued that if the Acting President and
the Premier had responsibilities for government, they should also
have the authority to utilize all the available government resources.
I was aware of the difficulties and the embarrassment for them and of
the danger to the peace negotiations by forcing the issue with the
Generalissimo now. Nonetheless, this was a problem that sooner or
later would have to be faced. It was, I added, a Chinese problem

AMBASSADORSHIP OF JOHN LEIGHTON STUART

303

which they should not look to us to solve for them. The emissary
understood that my remarks were only for the ears of the President
and the Premier and I believe he also understood their import.” 65 *

The following report from the Consul General at Shanghai, on
April 4, serves to point up some of the difficulties confronting the
Acting President :

“Despite the steady increase of Li’s prestige and popularity, his
actual power should not be overestimated. There is little indication
that he has been able to infuse any new fighting spirit into the Na-
tionalist armies, or indeed that he has been able to introduce any
substantial reforms which might eventually lead to that result. In
the military field his principal contribution has probably been to
decrease the anxiety of the Communist rank and file to fight and
thereby relatively to increase the strength of the Nationalists. How-
ever, until we have positive indications whether or not there is any
real fight left in the Nationalists, it cannot be said that any great
improvement in the military position has taken place.

“A second weakness which Li has had to face is his limited power to
enforce his orders and to hold in check centrifugal forces among Na-
tionalist leaders. The Generalissimo, though outwardly cooperating,
is maintaining in effect independent political and military authority.
The Kuomintang leaders in Canton are playing their own game, as
are other provincial leaders. Though Li has accomplished miracles
in asserting his authority in ever widening sectors, he still does not
have unified authority over Nationalist China. It is important both
to appreciate this and to realize how far he has come since he was given
his present responsibility with practically none of the Nationalist
assets — political, military and economic — to carry them out.”

On April 15, the Ambassador reported as follows :

“The Acting President has sent another appeal to me for assist-
ance. He asked if it would not be possible for the U.S. Government
to make some kind of statement deterring the Communists from
crossing the Yangtze. What he has in mind apparently is a state-
ment by the President or the Secretary to the effect that a Communist
crossing of the Yangtze would be considered a threat to the security
of the U. S. and that should such a military operation be undertaken
the U. S. would have to give consideration to the appropriate measures
to be taken. A statement in a press conference in reply to a pertinent
question might prove the most suitable method or some interested

Mb With reference to a Chinese request for silver aid see chapter VIII which
contains a more complete account of United States economic and financial aid
during this period.

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U. S. RELATIONS WITH CHINA

Senator such as Connally might give his views on the implications of
the Communists coming south of the river.

“I have every sympathy with the Acting President in his efforts to
contain the Communists north of the Yangtze. His appeal is further
evidence of the desperate position of the Nationalist Government vis-a-
vis the Communists and of the small confidence he places in the peace
negotiations at Peiping. Any statement of sympathy from the U. S.
at this time would encourage him enormously. I am not, however,
able to support Li’s request unless the U.S. Government is prepared to
back up such a statement by some kind of effective assistance. Since
the Acting President’s request requires a reply, I would be grateful
for the Department’s instructions.”

X. THE WITHDRAWAL OF THE GOVERNMENT
FROM NANKING

THE COMMUNIST DEMANDS OF APRIL 15, 1949

On April 15 the National Government at Nanking was informed
of the Chinese Communist Party’s terms, according to which the
Government would be given until April 20 to accept or reject the
draft agreement presented by the Chinese Communists. The Ambas-
sador was informed by Chinese Government officials that the draft
had been prepared by the Chinese Communist Party and had been
given to the Nationalist peace delegation at Peiping in the early
stages of the negotiations. After days of discussions the Nationalist
delegates succeeded in achieving slight drafting changes but nothing
of substance and they emphasized to the Government at Nanking
that this draft, which was based in general upon the Chinese Com-
munists’ eight-point proposals originally made public in January,
and was tantamount to unconditional surrender, would have to be
accepted without change. The Communist Party indicated that if its
terms were not accepted at the time of the expiration of the deadline,
it would break off negotiations. The Acting President explained
the foregoing circumstances to the Ambassador and some of his for-
eign colleagues on April 17. On the following day the Ambassador
reported as follows :

“General Pai Chung-hsi called on me this morning to report that
the Acting President, in view of the latest Communist demands,
will propose to the Generalissimo that, peace being impossible, he
should either resume full responsibilities of the presidency or leave
China, turning over all authority and national resources to Li Tsu'ng-
jen. By such steps the Acting President will seek to force the General-

AMBASSADORSHIP OF JOHN LEIGHTON STUART 305

issimo to end by a clear-cut decision the present state of confusion
which the latter, himself, has created.”

On April 20 the Ambassador further reported as follows :

“The Minister of Education called with an additional message
from the Finance Minister who is thoroughly discouraged over the
chaotic financial conditions in Nationalist territory and trying to
resign. Han Li-wu did not renew Liu’s request for immediate finan-
cial assistance but did ask what the U. S. attitude would be should
the Nationalist forces put up a spirited defense of the Yangtze, pre-
vent the Communists from crossing, and thereby recapture popular
support generally for continued resistance to the Communists
southward advance. He asked if under these circumstances there
would be a possibility of American financial assistance to stabilize
the local currency, or a substantial silver loan for payment of the
troops defending Nationalist territory. I replied along the lines
previously reported, pointing out that a considerable treasure of
gold, silver and foreign currency did exist and that it was an internal
Chinese problem for the present Government to obtain control of all
of it.”

THE CROSSING OF THE YANGTZE

Prior to the expiration of the deadline of April 20, the National
Government requested an extension of time to April 25 to enable it to
consider the Chinese Communist Party’s draft peace agreement and on
April 20 sent a message to the Chinese Communists rejecting the
draft peace agreement but requesting a cease-fire order so that further
negotiations might be held. In the meantime the Chinese Commun-
ists informed the Nationalist peace delegates at Peiping that if the
Government’s reply to their proposal were negative, or if no reply
were received by April 20, the Communists would consider the nego-
tiations ended and would begin the crossing of the Yangtze. At
midnight, on April 20, the Chinese Communist forces crossed the
Yangtze River at several strategic points, a crossing which was
described by the Embassy at Nanking, on April 23, in the following
terms :

“The ridiculously easy Communist crossing of the Yangtze was
made possible by defections at key points, disagreements in the High
Command, and the failure of the Air Force to give effective support.”

While these events were occurring, the Minister-Counselor at
Canton reported as follows, on April 21 :

“Chen Li-fu says that the decision last night at Canton of the
Central Executive Committee and that of the Government at Nan-

U. S. RELATIONS WITH CHINA

306

king to reject the Communist terms were both unanimous. He is
sanguine that the bickering between the various elements of the
Kuomintang has terminated and that the Party will rally as a unit
for renewed resistance. He envisages the complete removal of the
Government to Canton, leaving the Commander-in-Chief of the
Armed Forces with Headquarters at Nanking. He is confident that
the Air Force and the Navy will cooperate with the Ground Forces
and that the Yangtze crossing on any important scale can be delayed
for months, if not prevented. So far as he is aware, the Generalissimo
continues his willingness to send complete support to Li Tsung-jen
with no present intention of resuming authority himself.

“With the closing of the ranks of the Kuomintang, Chen is sanguine
of effective resistance to the Communist advance, yet desperately
wants assurances of further U. S. aid. After reviewing the unhappy
results of our past efforts to help China, and our failure largely be-
cause China refused to help itself, I cautioned him not to count upon
further U.S. aid unless and until the Government had first demon-
strated its ability with a broadened basis to rally support in territory
it still controls for further and effective resistance on a scale giving
promise of the ability eventually to retake the offensive. I men-
tioned our axiom *God helps him who helps himself , of which there
is a Chinese equivalent, and said that the American people could
not be expected to invest any more money in the Kuomintang regime
until it gave promise of offering an effective alternative to Commu-
nism. Chen tried unsuccessfully to pin me down as to what would
be considered effective resistance. Obviously, his back was to the
wall and he, like others in his position, is determined upon desperate
measures to avoid the almost inevitable Communist domination of all
China. Now that those who thought peace possible have been dis-
illusioned, he is sanguine that the Kuomintang, with united ranks,
will be able to rally sufficient support to prolong the struggle until
the U.S. can be persuaded once again to intervene. Should that time
come, he hopes that we will lay our cards frankly on the table and
demand a definite quid pro quo for anything we give. That is the
only way, he said, we could assure the accomplishment of the ends
we desire.”

On April 21 the Department sent the following message to the Am-
bassador at Nanking in reply to his report of April 15 conveying an
appeal from the Acting President for a statement by the United States
Government to deter the Chinese Communists from crossing the
Yangtze River :

AMBASSADORSHIP OF JOHN LEIGHTON STUART 307

“The Acting President’s request appears to be overlapped by the
meeting between him and you and your foreign colleagues on April
17, and to be overtaken by events . . .

“As you are aware, the only Congressional authority presently exist-
ing for aiding the Chinese Government is the legislation extending
the availability of the residual China Aid Act funds. The Depart-
ment’s views on this subject were set forth in the Secretary of State’s
letter to Senator Connally, of March 15, re the McCarran proposal.
For your information, the text of the letter to Senator Connally was
not released by the Department which wished to avoid possible adverse
effect on the Chinese Government and Li’s position in the negotiations
with the Communists.”

On April 23 the Acting President, the Prime Minister and the re-
maining officials of the Ministry of National Defense left Nanking for
Shanghai, en route to Canton. The Chinese Communist forces were
by this time across the Yangtze River in strength and Nationalist
Armies deployed for the defense of the river had been ordered to with-
draw to the south. Chinese Communist forces occupied Nanking on
April 24 and were in a position to move toward Shanghai. In succes-
sion, the Communist forces occupied Hankow on May 16-17, Shanghai
on May 25, and Tsingtao on June 2.

The general effect of these developments on the National Govern-
ment’s position was described by the Embassy in a report of May 1 :

“Despite the desperate plight of the Government and agreement
among all leaders of the necessity of continuing resistance to the Com-
munists, the basic conflict of authority between Li and the Generalis-
simo has not been resolved. The Generalissimo came out with a
public statement expressing confidence in final victory, though the
war may continue for three years, and pledging support to Li. How-
ever, there is no indication he really intends to relinquish power and
Li and Pai are increasingly bitter. This struggle probably will con-
tinue to hamstring Government resistance.”

XI. FORMOSA

The case of Formosa is a pertinent one in the record of American
efforts to encourage reform within the Chinese Government. By the
terms of the Cairo Declaration of December 1, 1943, the United States
and China declared their intention that Formosa should be restored
to China. In September 1945 the administration of the island was
taken over from the Japanese by Chinese forces assisted by small

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U. S. RELATIONS WITH CHINA

American teams pursuant to the Japanese Instrument of Surrender
and General Order No. 1 issued by the Japanese Government at the
direction of the Supreme Commander for the Allied Powers, dated
September 2, 1945.

China found Formosa in favorable circumstances since J apan had
made constructive use of the great natural resources of the island and
the living standards of the population were higher than anywhere on
the Chinese mainland. It possessed a good industrial complex and
was more than self-sufficient in foodstuffs. The native population for
50 years had been under the rule of a foreign invader and therefore
welcomed the Chinese forces as liberators. During the Japanese occu-
pation the principal hope of the people had been reunion with the
mainland. Instead of utilizing this highly favorable situation to its
own advantage the National Government appointed to the governor-
ship General Chen Yi, a long-time associate of the Generalissimo, who
some years before had given up the governorship of Fukien under
curious circumstances. The new Governor arrived with an imposing
retinue who proceeded with great efficiency to exploit Formosa. In
addition the local population was ruthlessly excluded from any im-
portant role in public life and was made to feel that it was again under
the rule of a conqueror.

The economic deterioration of the island and the administration of
the mainland officials became so bad that on February 28, 1947, popular
resentment erupted into a major rebellion. In the ensuing days the
Government put down the revolt in a series of military actions which
cost thousands of lives. Order was restored but the hatred of the
mainland Chinese was increased.

After the rebellion the American Ambassador in Nanking at-
tempted to persuade the Generalissimo that National Government
tactics in the long run could never succeed and that the Government by
its policy was destroying a source of wealth it desperately needed at
that time. The Generalissimo, who professed to be unaware of condi-
tions as they were reported to him by the Ambassador, and who relied
on the findings of a Chinese investigating mission whose findings were
in large part published and exonerated Chen Yi, was led to request that
a memorandum be prepared for him setting forth in detail conditions
as American officials saw them. This was done. 57

The facts set forth were such that General Chen Yi had finally to be
relieved of his post as Governor, and in May 1947 a civilian, Wei Tao-
ming, former Ambassador to the United States, was named as his
successor. During the ensuing year and a half, Governor Wei made an

57 For text of memorandum to the Generalissimo, see annex 169.

AMBASSADORSHIP OF JOHN LEIGHTON STUART

309

honest and earnest effort to remedy the situation. The military was
kept out of sight, some Formosans were taken into the Government,
encouragement was given to the local economy and the Governor him-
self attempted to isolate the island from the inflationary and destruc-
tive forces on the mainland, though many of the key officials were not
responsive to his authority. Although it cannot be said that economic
conditions improved, it can be said that the situation did not become
measurably worse.

During his Mission to China, General Wedemeyer on August 17,
1947, reported to the Secretary of State as follows :

“Our experience in Formosa is most enlightening. The adminis-
tration of the former Governor Chen Yi has alienated the people from
the Central Government. Many were forced to feel that conditions
under autocratic rule were preferable. The Central Government lost
a fine opportunity to indicate to the Chinese people and to the world at
large its capability to provide honest and efficient administration.
They cannot attribute their failure to the activities of the Communists
or of dissident elements. The people anticipated sincerely and en-
thusiastically deliverance from the Japanese yoke. However, Chen
Yi and his henchmen ruthlessly, corruptly and avariciously imposed
their regime upon a happy and amenable population. The Army
conducted themselves as conquerors. Secret police operated freely
to intimidate and to facilitate exploitation by Central Government
officials. . . .

“The island is extremely productive in coal, rice, sugar, cement,
fruits and tea. Both hydro and thermal power are abundant. The
J apanese had efficiently electrified even remote areas and also estab-
lished excellent railroad lines and highways. Eighty percent of the
people can read and write, the exact antithesis of conditions prevailing
in the mainland of China. There were indications that Formosans
would be receptive toward United States guardianship and United
Nations trusteeship. They fear that the Central Government contem-
plates bleeding their island to support the tottering and corrupt Nan-
king machine and I think their fears well founded.”

In January 1949, as the Communists were preparing to cross the
Yangtze, Governor Wei was summarily removed and replaced by Gen-
eral Chen Cheng, who proceeded to restore military rule. In recent
months the population of Formosa has been increased by an estimated
400,000 civilians and over 300,000 military refugees from the main-
land. With them they brought the mainland inflation and increased
the population to a point which the island may not be able to support.
In March 1949 American officials who had surveyed the economic

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U. S. RELATIONS WITH CHINA

deterioration reported that “mounting economic dislocation will in-
tensify economic friction leading to increased political tension unless
remedial action is taken.”

In summary, the views of American officials have been that the island
is badly and inefficiently run at a time when the best possible efforts
are needed unless developments on the mainland are simply to be trans-
ferred to Formosa.

CHAPTER VII

The Military Picture, 1945—1949

Although military aspects of the civil strife in China have been
mentioned throughout the preceding five chapters, it will be conven-
ient to summarize here the military picture since 1945 as back-
ground for a description of the military assistance of all types
rendered by the United States to the Chinese Government since V-J
Day. This assistance has included the supply of arms and other ma-
teriel, credits for military purchases, transportation of Chinese troops
and military advice, but it has scrupulously excluded the use of Amer-
ican personnel in combat operations between the Nationalist Govern-
ment forces and the Communists or their presence in combat areas.

I. MILITARY OPERATIONS

OPERATIONS IN 1945

With the formal surrender of the Japanese in September 1945, the
Chinese Nationalists and the Chinese Communists began a contest for
the control of Japanese-held areas of China. Forces of the National
Government which had borne the brunt of Japanese thrusts were con-
centrated in Central and South China in those areas to which the
Japanese advance had penetrated. The Communists, on the other
hand, organized as guerrilla units, were widely dispersed throughout
Central, North and coastal China, operating in the countryside through
which ran the J apanese lines of communication. In the race for the
control of those areas which the Japanese had occupied the Commu-
nists thus held a certain geographic advantage. The Government at
that time, however, possessed an estimated five to one superiority in
combat troops and in rifles, a practical monopoly of heavy equipment
and transport, and an unopposed air arm.

In order to assist the Government in reoccupying Japanese-held
areas and opening lines of communication, the United States immedi-
ately after V-J Day transported three Nationalist armies by air to key
sectors of East and North China, including Shanghai, Nanking and
Peiping, and likewise during the ensuing months provided water

311

312

U. S. RELATIONS WITH CHINA

transport for an additional large number of troops until, accord-
ing to Department of the Army figures, between 400,000 and 500,000
Chinese soldiers had been moved to new positions. The plans for these
operations and the planes and vessels to carry out the moves were
provided through Headquarters, United States Forces China Theater.
In order to assist the Government further in maintaining control of
certain key areas of North China and in repatriating the Japanese,
and at the request of the National Government, over 50,000 United
States Marines were landed in North China and occupied Peiping,
Tientsin, and the coal mines to the north, together with the essential
railroads in the area. With such American assistance, forces of the
Generalissimo, who had been designated by Scap as the sole agent
to receive the surrender of Japanese forces in China proper, were able
to effect the surrender of the great majority of the 1,200,000 Japanese
troops stationed there, together with their equipment and stocks of
military materiel. 1

Prior to V-J Day the American Government had embarked on
programs to equip an air force commensurate with the Chinese
Government’s, needs and a 39-division army. Following V-J Day,
transfers were continued to provide for an 8^3 group air force, and
under an authorization to assist in equipping reoccupation forces,
transfers of military materiel for ground troops were continued until,
by the end of December 1945, according to Department of the Army
records, sufficient equipment had been transferred to complete by ton-
nage the requirements of the 39-division program. Other lend-lease
transfers included quantities of vehicles and quartermaster items
which were of major significance in giving the Nationalist armies
mobility and in equipping them for operations in North China and
Manchuria.

The Communists for their part, despite the attempts of the National
Government to enforce the order that all Japanese in China should
surrender only to the Generalissimo, were able to force the surrender
of numbers of Japanese in Central and North China. However, their
greatest assistance was to come later from Manchuria, which the Rus-
sians had occupied and where, while engaged in the stripping of
Manchurian industries, they were effecting the surrender of the Japa-
nese. Upon the withdrawal of the Russian forces from that area in
1946, the arriving Government forces, hitherto prevented from occu-
pying Manchuria, found themselves facing Chinese Communist forces
already organized in the area and equipped with former Japanese
weapons.

J This was in accordance with General Order No. 1 issued by General Mac-
Arthur, Supreme Commander for the Allied Powers (Scap).

THE MILITARY PICTURE 1945-1949

313

As a result of military operations in the closing months of 1945 the
Government was able to clear the Lunghai Railway (Lienyunkang and
Paochi) and most of China south of it. To the north the Government
held Peiping, Tientsin and the line of communications to the Man-
churian border, Taiyuan, Tatung, and the western portion of the Ping-
sui Railway (Peiping and Paotow). It had not, however, gained
control of any of the major north-south railway lines, a serious handi-
cap since forces in North China depended for their logistical support
on bases in Central China.

The Government was faced with the alternatives of postponing the
attempt to reoccupy Manchuria or of overextending its military forces
in attempting to reoccupy it. This was in no case an easy decision
to make. United States military advisers pointed out the dangers of
occupying Manchuria in view of the logistical difficulty of support-
ing operations there while attempting to pacify China proper. The
Chinese Government in deciding to put its best armies and main effort
into reoccupying Manchuria at the end of a 1,000-mile-long supply
line committed itself to a scale of operations it could not support, and
opened the way to the eventual piecemeal destruction by the Com-
munists of its widely scattered military units.

OPERATIONS IN 1946

During the period of General Marshall’s mission in China, the
Government considerably improved its military holdings. Govern-
ment armies in mid-1946 comprised approximately 3,000,000 men,
opposed by something over 1,000,000 Communists of whom an
estimated 400,000 were not regular troops. In the first part of that
year the Nationalists succeeded in clearing important lines of com-
munication including the Lunghai in Central China, parts of the Ping-
han (Peiping and Hankow) and connecting north-south communica-
tions, and railway lines into Manchuria as far as Changchun. The
Communists, routed at Ssupinghchieh in Manchuria, saved their forces
from annihilation only by a rapid retreat across the Sungari River.
The Communists for their part during the first half of 1946
extended their holdings west into Kansu and Ninghsia, and
somewhat increased their control of areas in Shansi and along the
Ping-sui Railway. In general, however, major areas of combat were
limited to Manchuria where, as previously indicated, Communist gains
were made as a result of the withdrawal of the Russians from Man-
churia, handled in such a way as to facilitate Communist acquisition
of this territory and the Japanese equipment therein. During the
latter part of 1946 the Nationalists made impressive gains, clearing
most of Shensi, Kansu, north Shansi, south Chahar, part of northern

U. S. RELATIONS WITH CHINA

314

Hopeh and Jehol and nearly all of Kiangsu. The Government seized
Kalgan, Tatung, Chengte, and gained control of the Ping-sui Kail-
road.

In Shantung the Nationalists achieved a major advance, clearing
much of the Tsin-pu Railway (Tientsin and Pukow). Communist
gains during this period were limited to minor advances into Honan
and Hupeh, and infiltration around Government positions in Man-
churia. By the close of 1946 the superiority of the Government’s
forces was in most areas as yet unchallenged.

The gains of the Government from V-J Day to the end of 1946 ap-
peared impressive when viewed solely from the standpoint of areas
occupied and lines of communication cleared. The Government desire
to occupy Manchuria with its concentration of heavy industries is
understandable. It was essential, however, for it to control the lines
of communication to and in the areas it was clearing, for unlike the
Communists operating as guerrillas and living off the country, Gov-
ernment forces were supplied from bases in Central China. In occu-
pying Manchuria and in garrisoning such extensive lines of communi-
cation and the major cities along them, the Government overextended
itself both militarily and politically, with neither the troops to garrison
such holdings nor the personnel to administer them. The occupation
of these areas without the ability to draw support from their resources
meant a loss rather than a gain. In this sense the Nationalists found
themselves in a position not dissimilar from that of the Japanese
during their war with China, when, though holding the lines of com-
munication, they found themselves unable to bring the conflict to a
successful conclusion. The Communists, on the other hand, making no
effort to hold specific positions, retreated before Government forces
and succeeded in keeping their own units intact and mobile for even-
tual concentration and use at points of their own choosing against Gov-
ernment unite tied to the defense of fixed positions.

Department of the Army figures indicate that at the end of 1946 the
Government had 2,600,000 men under arms. Communist strength at
this time was over 1,100,000 men, the acquisition of Japanese stocks in
Manchuria having made possible the development of more effective
forces. The Government still, however, enjoyed a marked superiority
in rifles variously estimated at from three or four to one. That the
Government, possessing this superiority in men and equipment, should
so soon be forced on the defensive was less attributable to the admitted
skill of the Communists in planning their campaigns to conform to
their resources than to the military ineptness of the Government in
initially overestimating its capabilities, and subsequently refusing to
adjust to the realities of the situation.

THE MILITARY PICTURE 1945-1949

315

OPERATIONS IN 1947

In 1947 the strategic initiative passed from the Government to the
Communists and the latter carried the conflict from Manchuria and
North China into areas which had supposedly been cleared by the
Government. Activity which marked the turning point in the strife
included the mounting by the Communists of a series of minor of-
fensives in Manchuria and the successful blunting of a major Gov-
ernment drive into Shantung. The first Communist offensive in
Manchuria was mounted early in 1947 and lasted for only a few weeks,
but it and three successive drives wore down the Government units
defending key positions. The fifth Communist offensive mounted in
May covered most of Manchuria, netting the Communists over 20,000
captured rifles in its opening operations, lowering Government troop
morale in proportion to the increase in Communist morale, and leav-
ing the Government units in Kirin, Changchun, and Ssupingchieh sur-
rounded. The reasons for the Communist victories must be sought
in an appraisal of National failings rather than in positive Communist
accomplishments. Observers in the summer of 1947 noted that the
Communists had met no Nationalist resistance, with the result that
the Communists completely possessed the initiative. Several factors
contributed to the lack of any will to resist on the part of Government
troops. American military and diplomatic observers in China re-
ported that there was a rift in the Chinese Nationalist high com-
mand in Manchuria which produced indecisive leadership ; that troops
who for a year had been performing garrison duties had lost their of-
fensive spirit ; that during this period of military occupation friction
had developed between Government military personnel drawn mainly
from Central and South China, who considered themselves conquerors
and conducted a carpet-bag regime of exploitation, and the local
populace who had so recently greeted them as liberators from both
the Japanese and the Russians.

The Consul General at Mukden on May 30, 1947, forwarded the fol-
lowing appraisal of the situation to the Department of State :

“In past two months morale Nationalist forces has deteriorated
at rapidly accelerating pace. Present serious state of their demorali-
zation has been confirmed to us by many sources (including various
other Chinese contacts, Unrra officials, Americans just arrived from
Kirin, and indirectly Necc 2 quarters) and has become matter of wide
public knowledge and talk. It is reflected in jumpy nerves of military
garrison, efforts to evade conscription, and reliable information from
all sectors of Nationalist territory (including points distant from cur-

2 North East Combat Command.

316

U. S. RELATIONS WITH CHINA

rent fighting) indicating that Nationalists in a panicky state are fever-
ishly building trench systems everywhere with only ‘Maginot’ defense
strategy in mind. There is good evidence that apathy, resentment, and
defeatism are spreading fast in Nationalist ranks causing surrenders
and desertions. Main factors contributing to this are Communists ever
mounting numerical superiority (resulting from greater use native re-
cruits, aid from underground and Korean units), National soldiers
discouragement over prospects getting reinforcements, better solidari-
ty and fighting spirit of Communists, losses and exhaustion of
Nationalists, their growing indignation over disparity between officers
enrichment and soldiers’ low pay, life, and their lack of interest in
fighting far from home among ‘alien’ unfriendly populace (whereas
Communists being largely natives are in position of fighting for native
soil).

“This does not mean Manchurian collapse is necessarily imminent.
It does mean, however, that Nationalist morale has reached a point
where there is the possibility of a sudden debacle laying all Manchuria
open to the Communists whenever they choose to take it. In such an
event the Communists might close in immediately for the kill or prefer
to wait, while preparing the ground psychologically and ruining the
government’s morale which is not yet fully reflected in the military
picture.”

The Communists in seizing the initiative brought superior forces
to bear at points of greatest Government overextension, destroyed
isolated bodies of troops, cut communications and seized arms. At
this period the Government appears to have had two alternatives:
to reinforce its units sufficiently to enable them to assume the offensive,
closing with, and if possible destroying, the enemy, or to withdraw
before constant attrition made disaster inevitable. Any compromise
course offered the double penalty of both the loss of Manchuria and
the armies defending it. Reinforcements which could ill be spared
from other areas were sent to Manchuria, but these were not adequate
to compensate for losses sustained in the spring offensive. The Gov-
ernment’s further attempts to replace losses with recruitment from
Manchuria failed dismally, a marked indication of its failure to win
the support of the local populace. Though the Communists were not
yet strong enough to dislodge the Government from its main strong-
holds, the Government’s units, isolated and with their lines of com-
munication threatened, took on the aspect of beleaguered garrisons
waiting for reinforcements which would never come.

The failure of the Government to use properly the American trained
and equipped armies which it had sent to Manchuria, far superior to

THE MILITARY PICTURE 194 5-194 9

317

any Communist units, indicated that in this particular area faulty
generalship counted more heavily than fire power, and troop morale
more than superiority of equipment.

In other areas of China, Government forces in general kept the
initiative well into 1947. Large areas of Shantung were occupied
and by October the Government had seized Chefoo. In the west Gov-
ernment forces attacked and seized Yenan, the Communist capital,
using an estimated 75,000 troops in this operation. Widely heralded
as a great victory, this was in reality an expensive and empty one, for
the Communists, contrary to Government procedure, were unwilling
to violate sound military policy by committing major forces in combat
for a city which had symbolic but not military significance. The
Communists evacuated Yenan without a struggle, leaving the Govern-
ment to support its troops in the mire of the deserted Shensi area.

By mid-summer the Communists had started a southward move-
ment across the Lunghai and toward the Yangtze. This process, at
first an infiltration rather than a general movement, forced the Gov-
ernment to abandon some of its gains in Shantung in order to rein-
force its positions along the Lunghai. In commencing this movement
south while the Government had large forces concentrated in Man-
churia and Shantung, the Communists were operating on what appears
to have been an effective appraisal of Nationalist intentions and capa-
bilities, a realization that the Government was committed to positional
warfare, was overextended, that for reasons of prestige it would not
withdraw or consolidate, and that mobility and the initiative lay with
their own forces. By late 1947 the Communists had concentrated such
a considerable force in Central China that only a major Government
offensive could have dislodged it. Committed to the holding of wide-
spread areas the Government had no reserves for such operations,
though Government forces now comprised 2,700,000 men facing
1,150,000 Communists according to the best available estimates of
American military personnel.

By the close of 1947 Communist units lay in strength along the
railroads from North China to Manchuria, constantly threatening
interdiction of traffic on these lines ; they had occupied portions of the
Tsinan-Tsingtao Railroad in Shantung, had extended their holdings
along the Ping-han, and were preparing operations which in the fol-
lowing months would interdict traffic on the Lunghai. The Com-
munists held the rail lines in Manchuria north of Mukden and as the
year closed were conducting operations which cut permanently the
railroad south of that city. For Government forces, which had not
succeeded in developing local resources, the supply and replacement

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U. S. RELATIONS WITH CHINA

problems were critical. Government forces thus effectively compart-
mented by the interdiction of their lines of communication were to
be dealt with separately in the coming year.

OPERATIONS IN 1948 AND 1949

A Communist offensive mounted late in December of 1947 severed
all railway connections into Mukden and isolated all the major
Nationalist garrisons in Manchuria. The Government withdrew the
bulk of its forces from Kirin and Changchun in order to reinforce
its Mukden garrison. To supply the 150,000 to 200,000 troops within
the immediate Mukden area, the Government resorted to costly airlift
operations. Though the forces garrisoning Mukden included the New
First and the New Sixth Armies, the two best units available, the Gov-
ernment feared to commit these troops to offensive operations lest the
forces operating in the open cotmtry defect to the enemy, or lest attri-
tion or defeat endanger the entire Government position in Manchuria.
The Communists refrained from costly attacks on entrenched Gov-
ernment forces.

Elsewhere in China the Communists pushed their advantages. In
Shensi they reoccupied Yenan in mid- April. In the course of this
and subsequent operations they destroyed or captured the Government
units which had originally captured Yenan, together with consider-
able reinforcements, meeting little resistance in this operation, during
which many Government troops defected to the Communists. Gov-
ernment fear of further defections became a restraining influence in
the planning of operations and tended to constrict Government forces
even more deeply in their defensive positions.

Communist forces in Central China remained comparatively quiet
but in the spring moved against and seized several points along the
Lunghai including Loyang and Kaifeng, at which they met only
token resistance and from which they acquired considerable stores.
In Shantung the Communists took the offensive, the first major test
in this territory coming with the seizure of Weihsien. The senior
officer of the United States Military Advisory Group in China, Major
General David Barr, in a report on his duty in China, made certain
observations on this engagement, the substance of which follows:

In this battle the Nationalists’ commander, in order to preserve his
forces intact, withdrew them from the main areas of conflict into
the east city. In a subsequent attempt to evacuate his forces, he was
caught and his troops were destroyed. While the battle for the city
was being joined orders were issued for Government columns to move
from Tsinan and Tsingtao to relieve the city. The column from
Tsinan, three divisions strong, met inferior Communist forces and

THE MILITARY PICTURE 1945-1949

319

made no serious attempt to fight through to Weihsien. The column
from Tsingtao returned to that city without having engaged the
enemy. The Government’s defeat at Weihsien revealed that dis-
loyalty, poor morale and lack of will to fight marked the Government
units involved.

An Eca mission studying conditions in China expressed the follow-
ing views in a report dated July 23, 1948 :

“The Mission was really startled by the facts about the military
situation in China and to find such an enormous gap between what
they had supposed to be the case and the actual truth. We were
surprised at the wide gulf between the combined opinion of our own
competent military in China supported by the Ambassador and the
present military and related policy of the Chinese Government in
Nanking. This was despite repeated and continued efforts on the
part of the Ambassador with the support of the American military
advisers to persuade the Government to a change in its military
strategy and tactics.”

The Nationalists, however, clung to their defensive strategy, making
possible a major Communist victory in Shantung at Tsinan, where
85,000 to 100,000 Government troops took refuge behind the strong
natural and constructed fortifications of the city. The best available
estimates indicate that the Communists brought to bear against
Tsinan’s defenders a margin of superiority not normally adequate
to justify hope of victory in conflict for such a strong position. After
a brief period of fighting, marked by the defection of units of the
Nationalist 84th Division, the Communists took the city on Septem-
ber 23-24, 1948. With this victory they acquired an estimated 50,000
rifles and considerable stocks of ammunition.

The Consul General at Tsingtao submitted the following evaluation
of the causes for the Government’s defeat :

“Prime cause for swift loss of city is psychological rather than
material or military. Nationalist garrison had been isolated for two
months with no possibility ground support. Previous Nationalist
defeats in which Nationalist troops failed fight known to Tsinan
garrison and people. Communist victory at Tsinan felt inevitable in
view record of failure of Nationalists and consistent victories of
Communists who at Tsinan used many of best troops. Nationalist
soldiers and population Shantung in general no longer consider
Nationalist Government merits continued support in civil war, loss
of lives and economic chaos. These factors expressed themselves in
outright defection to Communists, immediate surrenders, and failure
to stand and fight. Those soldiers willing to fight were unable to

320

U. S. RELATIONS WITH CHINA

trust other units to support them. No mutuality of feelings between
regular forces and local Peace Preservation Corps troops. Nationalist
regulars were largely from Central and South China and had little
interest in defending strange city and people. Communists undoubt-
edly had organized support within city. No real attempt made defend
perimeter at distance outside of city wall. Antiquated custom of
falling back to city walls was speedily observed by Nationalist de-
fenders. Other military causes were poor intelligence, failure to
take initiative against Communists when concentrating for campaign
and thus keeping them off balance. Belated inadequate improper air
support.

“In a summary, majority troops at Tsinan did not want to fight
while those that did fight found their position made impossible by the
disaffected. Defection of Wu Hua-wen was merely the manifestation
of a general phenomenon. His treason was not of itself the cause
of defeat.

“Nationalists at Tsinan had ample ammunition and food and assur-
ance of further supplies in event protracted siege.”

The Communists encouraged by this victory rapidly moved against
Chinchow, supply base for Government forces in Manchuria. At
this city the Government had over 70,000 troops including units of
the recently brought up Eighth Army under General Fan Han-cliieh,
reputedly one of the ablest Chinese generals. Against these troops
the Communists, availing themselves of their superior mobility, con-
centrated a numerically stronger force. The Government at Mukden,
120 miles distant, had 150,000-200,000 men, including its best armies.
It had complete control of sea lanes and had available the port of
Hulutao to which reinforcements could and were eventually sent for
this key battle. It was obvious that the supply of units in Manchuria,
totaling some 300,000 men, would become vastly more difficult if
Chinchow fell and that its loss meant the eventual loss of Manchuria.

The commander of the Nationalist forces at Mukden, General Wei
Li-huang, was ordered to commence a movement to relieve Chinchow
by September 25. Wei delayed his departure from Mukden until
October 9 and then moved out slowly and without his complete forces.
Strong reinforcements were landed at Hulutao but only a portion of
them moved toward Chinchow; on meeting opposition these were
committed piecemeal and never reached their objective. According
to Department of the Army reports, Government units of the 93rd
Army defending the city defected to the Communists and on October
15, 1948, the Communists occupied it. In this victory the Communists
acquired not only the rifles and equipment of the defending forces

THE MILITARY PICTURE 1945-1949 321

but also great quantities of stores which had been stockpiled for the
use of Government forces in Manchuria.

The Generalissimo at this time flew to Peiping and assumed direc-
tion of field operations. This placed the actual commander miles from
the scene of fighting with no adequate information on the condition of
his forces or on the forces of the enemy. Commands were sent direct to
the commanding general of the units involved, eliminating the normal
coordinating staff levels. Though military observers considered that
the general plan of action evolved was sound, the lack of any co-
ordinating procedure produced complete confusion on all operating
levels. In a belated attempt to save the forces in Manchuria, orders
were issued for them to evacuate that area.

Events of the immediately following days have not yet been clearly
reconstructed. While Government units were operating in the field,
the Communists struck at the headquarters controlling their move-
ments and captured or killed its ranking officers. With no coordinated
direction, the previously American trained and equipped units which
had won such an illustrious record against the Japanese, disintegrated.
A few stragglers found their way back to Mukden, which was sur-
rendered to the Communists without a fight. A few thousands suc-
ceeded in reaching Yingkow and were evacuated by ship, but the over-
whelming majority of the Government forces in the Mukden area
surrendered without a fight to the Communists.

The Government in occupying Manchuria took steps contrary
to the advice of competent United States military observers
who were aware that the Government could not reoccupy Man-
churia and pacify the rest of China as well. As indicated previ-
ously Government forces in Manchuria were supplied from bases in
China proper. A contributing factor to the supply difficulties was the
Russian occupation of Dairen which denied to the Government the use
of Manchuria’s most efficient port and connecting railway line (though
other ports were available at Hulutao and Yingkow). After initial
offenses had been blunted, the Government fell back on the defensive.
Officers and troops of the Government never obtained the support of
the people on whom they were billeted. The loss of Manchuria was a
tragedy for the Government for it meant the loss of China’s most
highly developed industrial area, the prize which had originally drawn
the Government there. Of even greater significance was the loss of
the forces and resources without which successful resistance in North
China became impossible. The loss of Manchuria was the most strik-
ing illustration of the Government’s overestimation of its capabilities.

The Chinese Air Force, which had played no essential part in assist-

322

U. S. RELATIONS WITH CHINA

ing the Government forces during these battles, appeared after the
Communists had occupied Mukden and engaged in bombing from
such altitudes that competent military observers considered the opera-
tion a complete waste.

The tempo of the civil war after the fall of Mukden increased rapid-
ly. The Communists immediately moved against Hsuchow, where the
Government had maintained twenty-odd divisions spread out along the
Lunghai Railway. In an attempt to save the forces in this area an
evacuation was ordered, but the action taken was neither decisive nor
on time, and before the evacuation had been completed the Govern-
ment forces were surrounded by the Communists. In early November
General Barr reported to the Department of the Army :

“Deterioration of military situation in the Hsuchow area previously
reported has worsened due to known defection to the Communists of
two Nationalist Divisions with the suspected defection of an additional
three. As this defection becomes known to other Government units it
can be anticipated that it will spread rapidly not only in the Hsuchow
area but elsewhere.”

Both the former Hsuchow garrison and a force which had moved
up to reinforce it were isolated and destroyed after a minimum of
conflict.

Tientsin fell on January 15, 1949, after a brief siege; Peiping sur-
rendered without a fight at the end of January.

In a review of military developments from J anuary 1, 1948, through
January of 1949 the Intelligence Division of the Department of the
Army stated :

“The Nationalists entered 1948 with an estimated strength of 2,723,-
000 troops. Recruitment and replacement of combat losses kept this
figure constant through mid-September. By 1 February 1949, how-
ever, heavy losses had reduced Nationalist strength to 1,500,000, of
which approximately 500,000 are service troops. This represents a
reduction of 45 percent of the Nationalist Government’s total troop
strength, in a 4%-month period.

“Communist strength, estimated at 1,150,000 a year ago, has mounted
to 1,622,000, virtually all combat effectives. This increase of approxi-
mately 40 percent represents the creation of new units, particularly in
Manchuria and East Central China. Whereas the Nationalists began
1948 with almost a three-to-one numerical superiority, the Communist
forces now outnumber the total Nationalist strength and have achieved
better than a one-and-a-half-to-one superiority in combat effectives.
The expansion was accompanied by continued reorganization of the
military forces along more uniform and orthodox lines.

THE MILITARY PICTURE 1945-194 9

323

“The events of the last year, and more specifically those of the last
four and one-half months, have resulted in such overwhelming losses
to the National Government that, acting alone, its military position
has declined beyond possible recoupment. On the other hand, these
same events have so enhanced the position and capabilities of the
Communists that they are now capable of achieving a complete military
victory over the Nationalist forces. Other considerations, particularly
those of a political character, may affect the speed with which this
capability is exercised.”

The Military Attache at Nanking estimated that during this 4^-
month period Government forces lost over 140,000 American rifles.
Losses of other than American rifles are estimated to have been several
times this figure — practically all of which fell undamaged to the
Communists. Military estimates indicated that during this same
period the Communists effectively integrated into their own forces
approximately 200,000 former Government troops who could be used
as combatants, with possibly 400,000 more captured Nationalist troops
being integrated into Communist service units.

On April 20, 1949, the Communists crossed the Yangtze without
effective opposition by either the Chinese Army or the Chinese Air
Force and, having occupied Nanking, moved rapidly toward Shanghai,
which fell on May 25. Communist units which had crossed the Yangtze
to the west of Shanghai pushed forward rapidly meeting no resistance
from Government forces, which withdrew from their advance. By
the second week in May the Communists had pushed some twenty
armies 120 miles south of the Yangtze and were continuing to advance
without opposition. Since then Hankow has fallen, and Sian, gateway
to the northwest, has been captured.

Department of the Army estimates indicate that Government forces
remaining in China prior to the fall of Nanking and Shanghai con-
sisted of 315,000 in those areas; 175,000 at Sian, described by Chinese
Government officials as unreliable ; 120,000 under General Pai Chung-
hsi in the Hankow area ; an estimated 120,000 in the northwest without
equipment or the industrial facilities to provide it; and possibly
120,000 to 150,000 others scattered elsewhere throughout China in
isolated garrisons.

II. AMERICAN OPERATIONAL ADVICE TO THE

CHINESE

DIRECTIVES TO GENERAL BARR ON ADVISORY ACTIVITIES

In 1946 there had been established in China a United States Ad-
visory Group to assist in the implementation of certain phases of

324

U. S. RELATIONS WITH CHINA

American policy. It was kept in existence until late 1948. During the
latter part of its existence it was under the command of Major General
David Barr. The functions and operations of the Advisory Group
are described in subsequent sections of this chapter. Though unwill-
ing to assume responsibility for Chinese Government strategic plans
and operations, the United States Government determined in the
fall of 1947 to authorize the senior officer of the Army Advisory
Group to make his advice available to the Generalissimo on an infor-
mal and confidential basis. Instructions from Secretary of State Mar-
shall to the Ambassador in this sense were forwarded on November 28,
1947, reading as follows :

“You may rest assured premise is fully accepted here that military
expenditures on present war scale are incompatible with balancing of
Chinese Government budget which in turn is 1 prerequisite to controlling
of inflation. You may recall it was in anticipation of ultimate con-
sequences for China of such a situation that as long as two years ago
this Government attempted to prevent civil war in China. Further-
more it is a moot question whether military expenditures could in fact
be cut during a period of civil war if present forces were reduced but
remaining numbers given adequate care and equipment; it seems evi-
dent that only well led and well trained and cared for divisions imbued
with improved spirit would be capable of assuming and holding ini-
tiative against Chinese forces.

“I am willing that General Barr should make his advice available
to Generalissimo on informal and confidential basis and that Army
Advisory Group should supply advice with respect to reorganization
of Chinese Army Services of Supply should that be desired. I am
however not willing that we should accept responsibility for Chinese
strategic plans and operations. I think you will agree that im-
plications of our accepting that responsibility would be very
far-reaching and grave and that such responsibility is in logic insepa-
rable from authority to make it effective. Whatever the Generalissimo
may feel moved to say with respect to his willingness to delegate
necessary powers to Americans, I know from my own experience that
advice is always listened to very politely but not infrequently ignored
when deemed unpalatable.”

Prior to his departure from the United States, General Barr, later
to be appointed director of Jusmag, received additional oral in-
structions from the Secretary of State authorizing him to give this
advice on a personal and confidential basis. Following a conference
with the Generalissimo, arrangements were made whereby the Chinese
Ministry of National Defense provided General Barr information on

THE MILITARY PICTURE 194 5-1949

325

Chinese operations, and channels were established through which
General Barr could make known to the Chinese his recommendations.

GENERAL BARR’S REPORT

The section following relates some of the recommendations made
by General Barr and the manner in which the Chinese received and
acted upon this advice. The section consists of quotations from a
report submitted by General Barr early in 1949, with the occasional
explanatory material added by the Department of State enclosed in
brackets.

Report of Operational Advice Given to the Generalissimo , the Min-
ister of National Defense and the Chief of the Supreme Staff by

Major General David Barr

An early estimate of the situation, prior to the first formal meeting
of the select combined group, convinced me of the futility of continu-
ing to hold isolated Manchurian cities which were totally dependent
upon air for both civilian and military supply. The combined air-,
lift capacity of Chinese civilian and military transports fell far short
of the enormous tonnage requirements. The cost of air-lift replace-
ment, maintenance and fuel — in a country bereft of gold credits —
could only result in economic disaster, while making only ineffectual
contributions to the supply effort.

Early in March, therefore, when the Communists had withdrawn
their main forces from the vicinity of Changchun and Mukden, after
their winter offensive, I strongly urged the Generalissimo to take
advantage of this opportunity to make a progressive withdrawal from
Manchuria. He was aghast at this proposal, stating that no circum-
stances would induce him to consider such a plan. Hopeful of a com-
promise, I suggested the withdrawal into Mukden of the Changchun,
Kirin and Ssupingchieh garrisons. To this the Generalissimo replied
that political considerations precluded the abandonment of Chang-
chun, the ancient capital of Manchuria, but that he would consider
a plan for withdrawing the Kirin garrison into Changchun. The
Kirin garrison was accordingly withdrawn at a later date.

In my next conference with the Generalissimo, and after his reiter-
ated determination not to consider a withdrawal from Manchuria, I
pi oposed that an early offensive be launched to open rail communica-
tions between Chinchow and Mukden. The Generalissimo enthusias-
tically concurred, and instructed his staff to prepare a plan in con-
sultation with my assistants.

At a meeting at the Ministry of National Defense War Boom on 8
March 1948 General Lo indicated that a general plan for the opening

326

U. S. RELATIONS WITH CHINA

of a corridor to Mukden had been prepared and approved by the Gen-
eralissimo. . . „ On 5 May 1948, a coordinated attack from Mukden
and Chinchow would be mounted to open a corridor along the railroad
between those two points.

The lack of a broad strategic plan for operations was so obviously
missing that I inquired if such a plan existed. I was told that the
Chinese Armed Forces were then operating under a “Six Months’
Plan” and that a “Two Year Plan” had been prepared but was not
yet approved by the Generalissimo.

During the period between the date of the above meeting and 17
March 1948, the following events occurred :

The Nationalist 69th Army evacuated Kirin on 12 March and with-
drew into Changchun.

Ssupingchieh was captured by the Communists on the night of 12
March.

Air lift of 23,000 Nationalist troops from the Kaifeng-Loyang area
to Sian was initiated. For this air lift, all available military trans-
port aircraft was employed, the operation extending over several
weeks to the detriment of other operations I considered more impor-
tant. General Hu Tsung-nan, an old friend of the Generalissimo, had
prevailed upon him to reinforce his Sian garrison to an extent which
was later to prove disastrous to the Nationalists in East Central China.
The loss to the Communists of the Kaifeng-Chenghsien-Loyang area
was a direct result of this shift of troops to the west. It has been my
contention throughout that the strategic importance of Sian was
highly overrated. To this day, a large number of Nationalist troops
remain at Sian which could have been far more profitably employed
elsewhere.

The greater part of two Nationalist divisions were destroyed in the
mountains northeast of Sian because of poor reconnaissance and no
march security.

A meeting was held at the Ministry of National Defense War Room
on 17 March 1948. In discussing the coming offensive to open a corri-
dor to Mukden, the Chinese stated that it would take six months to
repair the railroad between Chinchow and Hsinmin.

On being questioned as to the amount of destruction the Nationalists
were able to achieve prior to the evacuation of Kirin, the Chinese were
vague. I pointed out that a large amount of the arms and ammunition
in the hands of the Communists was captured Nationalist equipment
and that the practice of permitting such material to fall into the hands
of the Communists was prolonging the war. Although I stressed this
point many times after that, it was of little avail. The Chinese seemed
inherently unable to destroy anything of value.

THE MILITARY PICTURE 194 5-1949 327

At a meeting with the Generalissimo on 24 March, I discussed with
him the following subjects, among others:

(1) The food situation in Mukden and our ability to assist by
immediate delivery of 12 United States C-46’s out of a total of 20
available in J apan for turnover to the Chinese.

(2) That United States ammunition from the Pacific, destined for
Mukden, had not yet been moved to that city although it had arrived
in Shanghai.

(3) The necessity of a definite and detailed plan for the opening of
a line of communication to Mukden. In this connection, the Generalis-
simo again assured me that he intended to hold Mukden at all cost.

(4) The Generalissimo stressed the need for .45 caliber ammuni-
tion for use in the large number of submachine guns being used in the
Nationalist Army.

In connection with paragraphs (1) and (4) above, I was able to
forward a memorandum to the Generalissimo on 29 March informing
him that 1 million rounds of .45 caliber ammunition were being made
available to him and that the transfer of 16 to 20 United States C-46’s
had been approved.

A meeting was held at the Ministry of National Defense War Room
on 16 April. . . . Following the above meeting, I called on Gen-

eral Yu Ta-wei, Minister of Communications, and learned that his
office had received no instructions regarding the reconstruction of the
Chinchow-Hsinmin railroad. He stated, however, that he had been
informed of the plan and was going ahead with his preparations.

On the 29th of April, at a conference with the Supreme G-3, he again
assured my staff that the Mukden attack would be launched on 5 May.
He stated that the Generalissimo had ordered the attack to jump off
not later than the 5th day of May. . . .

On the 30th of April, my staff interviewed an officer of the Com-
bined Service Forces installation in Mukden. He had only been in
office 4 days but had been sent to Nanking by Wei Li-huang to plead
with the Ministry for food and gasoline and additional air transport
to carry it in. He stated that the Army had food for about 3 weeks
and that he needed 3 million gallons of gasoline. He stated that he
had had a meeting with the Supreme Staff and that he could get no
cooperation from the Chinese Air Force but had arranged with the
civilian air lines to fly in an additional month’s supply of food. (Com*
ment : Each day brought new facts to confirm my belief that General
Wei Li-huang had no intention of mounting the proposed attack on
5 May.)

On 1 May 1948 my staff, in conference with the Supreme G-3, was
informed of a victory northwest of Sian in which parts of the 2d, 4th

328

U. S. RELATIONS WITH CHINA

and 6th Communist columns in that area were destroyed by the 82d
Nationalist Division and other troops of General Ma. A dispatch
from General Li, Deputy Supreme G-3, then in Mukden, stated that
Wei Li-huang wanted reinforcements from North China before stag*
ing his attack. General Lo Tseh-Kai, Supreme G-3, did not believe
then that the attack would be mounted. He stated that Wei Li-huang
was coming to Nanking to confer with the Generalissimo. (Com-
ment: I determined then that if the attack did not take place as
planned, I would recommend to the Generalissimo that Mukden be
evacuated quickly before the Communists could stage their spring of-
fensive, since Mukden and Changchun could not be indefinitely sup-
plied by air.)

Having been notified that General Chiang, Deputy Chief of Staff
of the Mukden Headquarters was in Nanking, I arranged a conference
with him at the Ministry on 4 May 1948. General Chiang led off with
a lengthy description of recent Communist movements from the north
towards the Mukden area, of their excellent state of supply and train-
ing and of the assistance they were receiving from Russia. It was
obvious that he was leading up to the news that the proposed Na-
tionalist attack to open the corridor to Chinchow would not be
mounted.

He stated that the morale of the Mukden forces was high and
muM they wanted to fight and defeat the Communists. When asked
"why not then fight now before it is too late?”, General Chiang
answered that reinforcements from North China were necessary.
He stated that a strong defense of the Mukden-Chinchow areas
should be made at that time and a coordinated attack to open a cor-
ridor be made later. He advised to sit tight until the Communist in-
tentions became clear and then take action. This was undoubtedly
the policy Wei Li-huang would pursue in spite of all orders to the
ontrary from the Generalissimo and the Supreme Staff. The oppor-
tunity to take the initiative away from the Communists had been
lost. It was extremely doubtful if a later attempt to open a corridor
would be successful.

I attended the conference mentioned above, on the afternoon of the
5th of May at the Generalissimo’s home. Present were the General-
issimo and Madame Chiang Kai-shek, the three Mukden Generals
mentioned above and several members of the Supreme General Staff.
After a lengthy discourse by the Mukden Generals as to the reasons
the long awaited Manchurian operations could not then be staged,
the Generalissimo asked for my opinions. I told him that I had
heard nothing but reasons why the attack could not be mounted.
That at a later date I was convinced the same excuses would be given

THE MILITARY PICTURE 1945-1949

329

plus those that would develop during the interim. I recommended
that the attack be mounted then and that if this could not be accom-
plished then Manchuria should be evacuated while an opportunity
still offered itself. I pointed out that Communist strength in Man-
churia was increasing and that if success was uncertain at this time,
it was definitely impossible later. I further pointed out that Chang-
chun and Mukden could not be indefinitely supplied by air. The
Generalissimo stated that because General Fu Tso-yi could not spare
two armies from North China at that time to reinforce the Chinchow
garrison, a reinforcement being considered necessary to the success
of the operation, he had decided to postpone the attack to 1 August
1948. He further stated that the troops then available in Manchun.
would be the only ones that could be counted upon and enjoined
the Mukden commanders to use the time available for the intensive
training of these troops. (I would like to point out at this time
that the Generalissimo had directed General Wei Li-huang as early
as the preceding winter to prepare plans and ready himself for an
attack early in May to open a corridor from Mukden to Chinchow.
That the Supreme G-3 and members of his division had made six
separate trips to Mukden in an effort to press preparations for this
attack. That both myself and my staff had continuously urged the
Chinese towards this effort since early February. That General
Wei Li-huang was able to get away with such complete disobedience
of orders without punishment or even censure, as far as I know, points
out one reason why the Nationalists are losing the present war.)

On 6 May 1948, the Supreme G-3 had a conference with the three
visiting Mukden Generals. General Chao had told him that the Com-
munists had learned of the proposed Nationalist attempt to open
the corridor and were moving troops to intercept the attack. He in-
sisted that more time was needed to train and organize more troops.
His main theme was to defend Mukden and Chinchow thus con-
taining large masses of Manchurian Communists which in turn
meant the salvation of North China. The G-3 disagreed and pointed
out that another such opportunity to wrest the initiative from the
Communists and defeat them would not occv" again.

At a meeting on 29th May I asked whether there was any intention
or thought being given to a withdrawal from Manchuria and was
given a negative answer. I stated that if Chinchow fell as a result
of inaction at Mukden, then Mukden was surely lost and that this
should be made clear to Wei Li-huang. The Chief of Staff informed
me that an agreement was reached at the Generalissimo’s headquarters
that if Wei Li-huang failed to assist the Chinchow garrison, he would
be severely punished.

330

U. S. RELATIONS WITH CHINA

During the month of May 1948, certain political and military
developments occurred which are of interest. The National Assembly
adjourned on 1 May after electing Chiang Kai-shek and Li Tsurxg-jen
President and Vice President respectively. On 10 May the Executive
Yuan resigned en bloc which brought most government efforts to a
standstill and made decisions difficult to obtain. A new Cabinet was
not appointed until after Inaugural Day, 20 May. General Ku Chu-
tung, Commander of the Ground Forces, was named Supreme Chief
of Staff during the week ending 14 May and General Yu Han-mou
was named as Commander of the Ground Forces. The selection of
these officers to fill these highly important military posts was a dis-
appointment to me. Their military background left much to be
desired. They were staunch supporters of the Generalissimo and it
was obvious that their appointment was for political expediency
rather than ability. I had met them both before and had been im-
pressed by their lack of personality.

[In view of the Chinese determination not to abandon Manchuria
and following an inspection of certain areas there by American offi-
cers, General Barr on June 2, 1948, submitted new proposals for offen-
sive action in Manchuria.]

During the period from the 20th to the 80th of June, my staff in
personal conferences with the Supreme G-2 and G-3, were made
acquainted with the following facts:

Because of the serious situation forming in East Central China, the
Generalissimo flew to Chienhsien, west of Kaifeng to personally direct
operations. On the 24th of June he held an important military com-
manders’ meeting at Sian. In connection with this and other such
meetings, the Minister of National Defense, General Ho Ying-chin,
complained to me, with some bitterness, that the Generalissimo often
issued operational orders direct without informing him or the Supreme
General Staff. This is a well known failing of the Generalissimo’s.
It was reported to my staff that the Chinese Air Force in a weak effort
to support the defenders of Kaifeng, strafed Communist columns from
elevations well above 2,000 feet. This failing was mentioned to the
Chinese on innumerable occasions without apparent result. Not only
did they strafe from ineffective heights, but they also bombed from
ridiculous elevations. It was also reported that Kaifeng was bombed
during the Communist occupation, which was later proven untrue or
at least the results were very ineffective.

Decision was made by the Generalissimo to defend isolated Tsinan
to the last. (Such decisions have been costly to the Nationalists in
troops and supplies.) I pointed out again to the Generalissimo and

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331

to the Supreme Staff the futility of attempting to hold cities from
within restricted perimeters by purely defensive measures against
overpowering enemy forces. Tsinan at this time was isolated from
Hsuchow by Communist forces at Yenchow and Taian. Although in
considerable strength in this area the main Communist force was still
on the Honan plains, southeast of Kaifeng. An opportunity existed
to do one of two things. By offensive action north from Hsuchow
and south from Tsinan, the Nationalist forces were capable of destroy-
ing the Communists and reopening the corridor between Hsuchow and
Tsinan. The Nationalists were also capable at this time of evacuat-
ing Tsinan and withdrawing into Hsuchow. Having no confidence
in the will to fight of the Tsinan garrison after their ineffective attempt
to recapture Weihsien, and having heard reports of the questionable
loyalty of some of the senior commanders, I recommended that the
city be evacuated, and the troops be withdrawn to Hsuchow. Again,
as in the case of Changchun, I was told that because of political rea-
sons, Tsinan, the capital of Shantung Province, must be defended.

On July 2, 1948, at the invitation of the American Military Attache,
Brig. Gen. Robert H. Soule, I flew over Kaifeng and the area to the
southeast thereof where heavy fighting was reported to be in progress.
Reports of destruction in Kaifeng by the Chinese Air Force bombing
and fire were proven untrue. With the exception of a few bomb
craters outside the city walls, no effects of the bombing could be seen.
We circled at low altitude all over the reported battle area southeast
of the city, but with the exception of a few burning houses in scattered
villages, a few mortar shell bursts, some marching troops and two
fighter planes flying higher than we were, there was little evidence
of the reported clash of half a million men.

At a meeting in the Ministry of National Defense War Room on
14 September 1948, the following observations were made by the
Chinese :

The G-3 stated that although completely surrounded and isolated,
food was still coming to Tsinan from the countryside. He believed
that an additional division could be air lifted into Tsinan to assist
in the defense. I recommended strongly against this believing that
the city was lost and that it only meant the loss to the Nationalists
of an additional division. One had already been air lifted in from
Tsingtao. I recommended, that rather than fly in additional troops,
the present Tsinan garrison be air lifted to Hsuchow.

On 24 September 1948 I learned that Tsinan had been captured
by the Communists. The unexpectedly early fall of the city was the
result of a defection to the Communists of an entire Nationalist divi-

332

TJ. S. RELATIONS WITH CHINA

sion which had been entrusted with the defense of the western ap-
proaches to the city. This division, former puppet troops, had been
suspected and should have previously been relieved.

At a meeting with the Generalissimo on the 29th of September, the
following matters, among others, were discussed :

The Generalissimo expressed deep disappointment over the out-
come of the battle of Tsinan and stated that its fall was unexpected.
He said that it was necessary for a study to be made on Chinese
strategy, tactics, training and organization of field units in order that
the mistakes committed at Tsinan would not be repeated. He said
that the old strategy of holding strong points or key cities at all cost
would have to go.

The Generalissimo said that my reasoning was very sound and
expressed the hope that I would attend the weekly military operational
conference held each Wednesday in the Ministry of Defense War
Room. He asked that I give his operational officers the benefit of
my experience and advice. I stated that I would be glad to comply
with his request.

[In view of Communist activity around Chinchow the Generalissimo
had ordered General Wei in Mukden to take aggressive offensive
action to relieve the pressure further south. General Barr made the
following comment on a meeting held October 1 in the Ministry of
National Defense War Room:]

I pointed out that the situation in Chinchow was extremely critical,
that five days had passed since General Wei Li-huang had received
orders to attack to the west and that there had been no indication of
such an attack getting under way. I recommended that the Mukden
troops break out to the west of their position at once, ready or not.

At a luncheon meeting on 7 October 1948 the following matters were
discussed and recommendations made:

General Ho Ying-chin announced that it had been determined to
organize, train and equip an additional 28 strategic reserve divisions
(three regiments in each) over and above the nine presently being
organized and trained. I pointed out that little progress had been
made in the original plan to form nine divisions and asked how he
expected to handle 28 more. He replied that there were that many
in the south and west that had been depleted in combat, were partially
equipped, and could be brought up to strength and equipped with
United States aid supplies supplemented by Chinese production. He
stated that his representatives would confer shortly with Brigadier
General Laurence Keiser, my Ground Division Senior Adviser, on
the plan. This was another example of Chinese grandiose planning
without thought or regard to the possibility of its implementation.

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333

General Ho stated that the Generalissimo was in Peiping. (The
Generalissimo did not return to Nanking until after the fall of
Mukden and Chinchow. He directed this operation from Peiping
without the assistance of his Supreme Staff whom he failed to keep
informed as to what was taking place. In spite of this unorthodox
procedure, the plans made and orders given were sound and had they
been obeyed, the results would probably have been favorable.)

At a meeting in the Ministry of National Defense War Room on 13
October 1948, the following matters were discussed :

General Wei Li-huang had used only 11 divisions in his breakout
to the west instead of 15 as ordered. He had been directed to employ
his 52d Army to reinforce his operations. The attack had commenced
on 9 October, 13 days after receipt of orders to attack immediately.
Progress had been very slow to date.

In discussing the situation at Changchun, I learned that the gar-
rison commander, General Cheng Tung-kuo, had received instructions
from Wei Li-huang to coordinate his breakout with Wei Li-huang’s
attack, immediately before, during or immediately after. To date
there had been no indications of any effort on his part to comply with
these confused instructions and the situation at Changchun was
obscure.

At a meeting in the Ministry of National Defense War Room on the
20th of October 1948, the following matters were discussed :

A briefing by the Supreme G-2 and G-3 disclosed the loss to the
Communists on 20 October of Changchun after the defection of the
majority of the garrison and the suicide of the garrison commander,
General Cheng Tung-kuo. This report of suicide was later found
to be untrue. It was reported also that Chinchow had fallen with
four of the victorious Communist columns already moving south to-
wards Hulutao. The efforts of the Nationalists to attack north from
the Chinsi-Hulutao area had been completely unsuccessful while the
movement southwest from Mukden of General Wei Li-huang’s armies
was disappointingly slow.

I asked whether or not plans had been prepared for the evacuation
of the Chinsi-Hulutao area and upon being answered in the negative,
I recommended that plans be made then to include shipping necessary
for the evacuation of heavy equipment and supplies, and suggested
that the troops fight south down the corridor.

I asked if it was known what General Wei Li-huang intended to do,
since Chinchow had fallen, and suggested that he should evacuate
Mukden entirely and fight southwest with the idea of entering North
China. I pointed out that if he returned into Mukden, the Nationalist
Government could not supply him much longer by air and that his

334

U. S. RELATIONS WITH CHINA

position would deteriorate into a second Changchun. General Ho
Ying-chin agreed and stated that he had put this question up to the
Generalissimo who was still in Peiping, but had received no reply.

In a visit to G-3 on the morning of 28 October 1948, my staff
learned of the defeat of General Wei Li-huang’s forces west of
Mukden on 27 October. I recommended that the 11 Nationalist di-
visions then in the Chinsi-Hulutao area, be evacuated by sea at once
or make a determined effort to fight their way south into north China
before the main Communist strength could return to prevent it. I
further recommended that the troops in Yinkow, and all that could
reach Yinkow from Mukden, also be evacuated by sea at once. I
could not refrain from pointing out that if Wei Li-huang had moved
southwest promptly after receiving his orders on the 25th of Septem-
ber, instead of delaying until the 9th of October, and then had
moved with speed in the attack, he would have saved Chinchow and
could have brought all his strength into North China. General Ho
admitted that I was correct, but stated that his hands were tied and
that the Generalissimo had directed the entire operations alone from
Peiping without reference to him or to the Supreme Staff. In this, of
course, the Generalissimo was wrong, but the orders he issued to
General Wei Li-huang for the conduct of operations in Manchuria
were sound. Had they been carried out with determination and speed
there was every chance of success. Chinchow, though sorely pressed,
held out against the Communists long enough to enable the Mukden
and the Hulutao-Chinsi forces to converge to their rescue had they
moved promptly and fought with sufficient determination to get there
in time. The Nationalist troops, in Manchuria, were the finest sol-
diers the Government had. The large majority of the units were
United States equipped and many soldiers and junior officers still
remained who had received United States training during the war
with Japan. I am convinced that had these troops had proper lead-
ership from the top the Communists would have suffered a major
defeat. The Generalissimo placed General Tu Yu-ming, an officer of
little worth, in charge of field operations, properly relegating to Gen-
eral Wei Li-huang over-all supervision from Mukden where he could
do little harm. But Tu Yu-ming also fought the battle from Mukden,
placing the burden of active command in the field to General Liao
Yao-hsiang, Commanding General of the 9th Army Group. Liao
was a good general but was killed early in the action. Without top
leadership and in the confusion that followed the Communists were
able to segment the Nationalist forces and destroy them piecemeal.
General Wei Li-huang and General Tu Yu-ming deserted the troops
and were safely in Hulutao at the end. The efforts of the troops in the

THE MILITARY PICTURE 1945-1949

335

Chinsi-Hulutao area to relieve Chinchow were also futile. Instead of
mounting an all-out attack with full force initially, which could have
swept aside the Communists who were weakened by withdrawals sent
against Wei Li-huang, the attack was developed slowly with troops
being thrown in piecemeal. The attack soon bogged down with the
troops showing little will to fight. The loss of Manchuria and some
300,000 of its best troops was a stunning blow to the Government.
To me, the loss of the troops was the most serious result. It spelled
the beginning of the end. There could be no hope for North China
with an additional 360,000 Communist troops now free to move against
its north flank.

[Following the loss of forces in Manchuria the center of activity
shifted to Hsuchow.]

At a meeting in the Ministry of National Defense War Room on
the 25th of November 1948, the following matters were discussed :

The Supreme G-2 and G-3 briefed the assembly on the current
military situation. The strength of the Hsuchow garrison was given
as 270,000. Regarding supplies, it was stated that ammunition was
sufficient but a food shortage existed. I strongly recommended that
Hsuchow be evacuated at once and that its troops move south against
the rear of the Communists forces below Shusien. The G-2 reported
that the Mukden-Chinchow railroad had been restored. It had taken
the Communists just 25 days to restore this line, a project the Nation-
alists had insisted would take 6 months when discussions were under
way concerning the proposed Nationalist 5 May attack which never
materialized.

At a meeting in the Ministry of National Defense War Room on 1
December 1948, the following subjects were discussed :

The usual G-2— G-3 briefing disclosed that four of the nine Nation-
alist armies at Hsuchow were not being employed in the attack to the
south. I recommended that the attack be an all-out one and that all
troops be employed with a view toward evacuating the city entirely.
I again stressed the necessity for speed. General Ho Ying-chin stated
that the orders issued had been to that effect.

[Despite belated efforts of the forces in the Hsuchow area to with-
draw to more easily defensible positions these forces were surrounded
and destroyed by the Communists as were units moving to their relief.
As it became apparent that the remaining military forces of the Gov-
ernment were powerless to stop the Communist armies and that their
defeat was inevitable, steps were taken to decrease the size of Jusmag,
for American military personnel associated with it did not have the
diplomatic immunity accorded attaches. With the certainty that
Nanking would fall in the immediate future and with the disorganized

336

U. S. RELATIONS WITH CHINA

condition of the Chinese armies, its period of usefulness had passed
and orders were issued for its removal from China. On December 18
in a telegram to the Department of the Army General Barr stated in
part : “Marked by the stigma of defeat and the loss of face resulting
from the forced evacuation of China, north of the Yangtze, it is ex-
tremely doubtful if the National Government could muster the neces-
sary popular support to mobilize sufficient manpower in this area
(South China) with which to rebuild its forces even if time permitted.
Only a policy of unlimited United States aid including the immedi-
ate employment of United States armed forces to block the southern
advance of the Communists, which I emphatically do not recommend,
would enable the Nationalist Government to maintain a foothold in
southern China against a determined Communist advance. . . .

The complete defeat of the Nationalist Army . . . is inevitable.”]

[General Barr summarized his views of the causes for the Govern-
ment’s defeat as follows :]

Many pages could be written covering the reasons for the failure of
Nationalist strategy. I believe that the Government committed its
first politico-military blunder when it concentrated its efforts after
Y-J Day on the purely military reoccupation of the former Japanese
areas, giving little consideration to long established regional senti-
ments or to creation of efficient local administrations which could
attract wide popular support in the liberated areas. Moreover, the
Nationalist Army was burdened with an unsound strategy which was
conceived by a politically influenced and militarily inept high com-
mand. Instead of being content with consolidating North China,
the Army was given the concurrent mission of seizing control of
Manchuria, a task beyond its logistic capabilities. The Government,
attempting to do too much with too little, found its armies scattered
along thousands of miles of railroads* the possession of which was
vital in view of the fact that these armies were supplied from bases
in central China. In order to hold the railroads, it was also necessary
to hold the large cities through which they passed. As time went on,
the troops degenerated from field armies, capable of offensive combat,
to garrison and lines of communication troops with an inevitable loss
of offensive spirit. Communist military strength, popular support,
and tactical skill were seriously under-estimated from the start. It
became increasingly difficult to maintain effective control over the
large sections of predominantly Communist countryside through
which the lines of communication passed. Lack of Nationalist forces
qualified to take the field against the Communists enabled the latter
to become increasingly strong. The Nationalists, with their limited
resources, steadily lost ground against an opponent who not only

THE MILITARY PICTURE 1945-1949

337

shaped his strategy around available human and material resources,
but also capitalized skillfully on the Government’s strategic and
tactical blunders and economic vulnerability.

Initially, the Communists were content to fight a type of guerrilla
warfare, limiting their activities to raids on lines of communication
and supply installations. The success of their operations, which
were purely offensive, instilled in them the offensive attitude so neces-
sary to success in war. On the other hand, the Nationalist strategy
of defense of the areas they held, developed in them the ‘wall psy-
chology’ which has been so disastrous to their armies. As the Com-
munists grew stronger and more confident, they were able, by concen-
trations of superior strength, to surround, attack, and destroy
Nationalist units in the field and Nationalist held cities. It is typical
of the Nationalists, in the defense of an area or a city, to dig in or
retire within the city walls, and there to fight to the end, hoping for
relief which never comes because it cannot be spared from elsewhere.
The Chinese have resisted advice that, in the defense of an area or a
city, from attack by modern methods of warfare, it is necessary to take
up positions away from the walls where fire and maneuver is possible.
Further, they have been unable to be convinced of the necessity for
withdrawing from cities and prepared areas when faced with over-
powering opposition and certain isolation and defeat, while the
opportunity still existed for them to do so. In some cases their reasons
for failure to withdraw and save their forces were political, but in
most cases, they were convinced that by defensive action alone, they
could, through attrition, if nothing else, defeat the enemy. Because
of this mistaken concept and because of their inability to realize
that discretion is usually the better part, of valor, large numbers of
Nationalist troops were lost to the Government.

It must be understood that all through the structure and machinery
of the Nationalist Government there are interlocking ties of interest
peculiar to the Chinese — family, financial, political. No man, no
matter how efficient, can hope for a position of authority on account of
being the man best qualified for the job; he simply must have other
backing. In too many cases, this backing was the support and loyalty
of the Generalissimo for his old army comrades which kept them in
positions of high responsibility regardless of their qualifications. A
direct result of this practice is the unsound strategy and faulty tactics
so obviously displayed in the fight against the Communists.

Cooperation among and coordination of effort between the Armed
Forces leaves much to be desired. The Ground Forces, being the old
and dominant arm, is the source from which the large majority of top
military positions are filled. These officers, mostly old and loyal con-

TJ. S. RELATIONS WITH CHINA

338

temporaries of the Generalissimo, have little or no knowledge of the
newer arms: the Air Force and the Navy. The Chinese Air Force,
consisting of 8 i/j groups, is far in excess of what a country bereft of
gold credits can support. Although it has among its personnel over
five thousand United States trained pilots, it accomplished little, other
than air-lifting troops and operating its transports for personal gains.
There was an ever present reluctance to take a chance on losing equip-
ment or personnel, which was clearly reflected in their constant refusal
to operate at other than high altitudes. There was an ingrained
resentment in the Chinese Air Force against killing Chinese Com-
munists who had no air support. All of these factors are important
and unfortunate because the Chinese Air Force, unopposed, could
have rendered invaluable support in ground operations had its capa-
bilities been properly employed. From a military viewpoint, the
case of the Navy is not so important since its employment, right or
wrong, could have had little effect on the final outcome ; all operations
were land based. From an economic viewpoint, the Navy could have
been of inestimable value in suppressing smugglers in Hong Kong-
Canton waters had it been willing to suppress and not participate. It
was completely relieved of this mission in March 1948, and reputedly
millions of dollars in customs revenue continue to be lost to the
Government.

It might be expected that the Communists, being Chinese them-
selves, would also suffer from these faulty Nationalist traits and char-
acteristics, and to a certain extent they do, but they have wisely
subordinated them and made their ideology of Communism almost a
fetish. By means of total mobilization in the areas they control,
propaganda, and the use of political commissars within their armed
forces, they maintain loyalty to the established order. Their leaders
are men of proven ability who invariably out-general the Nationalist
commanders. The morale and fighting spirit of the troops is very
high because they are winning. 3

III. AMERICAN ADVISORY GROUPS IN CHINA

LEGISLATION AND AGREEMENTS

As of V-J Day American forces in China numbered approximately
60,000 men. Though redeployment to the United States was com-
menced soon thereafter, Headquarters, United States Forces China
Theater, and its component units continued to provide assistance to
the Chinese Government, planning and implementing the redeploy-

3 This concludes the quoted portion of General Barr’s report.

THE MILITARY PICTURE 1945-1949

339

ment of the Chinese Nationalist Army, supervising the turnover to
the Chinese of military supplies, and conducting and assisting in the
repatriation of Japanese forces. Simultaneously the Marines in
North China were repatriating Japanese and maintaining control for
the Government of the lines of communication in that vital area, a
service of great military significance in view of the fact that all avail-
able Chinese and American facilities were being strained to enable
the Chinese to occupy other key areas and in view of the logistical
difficulties which would have faced the Chinese if they had occupied
this area at an early date and depended for supplies on Central China,
to which no railroad connections had been opened.

Concurrent with this assistance plans were prepared for the form-
ation of military advisory groups which had been requested by the
National Government. Annex 170 sets forth a memorandum of con-
versation between President Truman and Dr.- T. V. Soong on Septem-
ber 14, 1945, in which the question of American military assistance
to China was discussed. It was the original intention of the United
States in 1945 that military assistance would be designed to assist
in the reorganization and consolidation of the various Chinese armies
under the terms of general principles which had already been agreed
to by the National Government and the Chinese Communists. This
whole concept was implicit in the mission of General Marshall. It
was the hope at that time that civil strife could be avoided and,
therefore, no American military assistance could, as President Truman
stated, be diverted to fratricidal warfare or to support undemocratic
administration.

With this in view the Nanking Headquarters Command was acti-
vated on February 20, 1946. On February 25, 1946, the President
issued a directive to the Secretaries of State, War, and the Navy as
follows :

“The Secretaries of War and the Navy are authorized and directed
to establish jointly a U. S. Military Advisory Group to China. The
strength of the Advisory Group shall not exceed one thousand officers
and men except as authorized by me in the light of possible future
political and military developments.

“The Secretary of State will conduct the necessary negotiations
with the Chinese Government.

“The object of this Advisory Group will be to assist and advise the
Chinese Government in the development of modern armed forces for
the fulfillment of those obligations which may devolve upon China
under her international agreements, including the United Nations
Organization, for the establishment of adequate control over liberated

340

U. S. RELATIONS WITH CHINA

areas in China, including Manchuria, and Formosa, and for the main-
tenance of internal peace and security.”

Pursuant to the receipt of this directive the military services moved
to formalize the status of the advisory groups as such and to assign
them appropriate missions. There were initially two groups — an
Army Advisory Group which included army, air and supply advisers,
and a Naval Advisory Group. Legislation was likewise requested in
order to provide authorization for their operation after the expiration
of the President’s wartime powers under which they were initially
being established. A bill to provide military advice and assistance to
the Republic of China was introduced in the Senate on June 13, 1946,
as S. 2337 of the 79th Congress, 2d session. A similar bill was intro-
duced into the House on June 14, 1946, as H.R. 6795. The Committee
on Foreign Affairs of the House reported favorably on H.R. 6795, but
no other action was taken in the 79th Congress on these bills, both bills
dying with the termination of the 2d session of the 79th Congress. A
Military and Naval Missions Bill (H.R. 2313 and S. 759, 80th Con-
gress) providing for the detail of such missions to foreign countries
was introduced in the succeeding Congress, passing the House but not
the Senate, where it was referred to the Senate Armed Services Com-
mittee. The Navy obtained legislative authorization for the establish-
ment of a Naval Advisory Group through Public Law 512 of the 79th
Congress, which authorized the transfer of 271 ships and craft to
China and the detailing of 300 navy personnel to assist the Chinese in
naval matters. Pending the procurement of legislative authorization
for the other components of the advisory group and pending decision
on the advisability of establishing joint or separate groups, it was
determined not to negotiate a formal agreement with the Chinese Gov-
ernment. Informal discussions, however, resulted in a draft agree-
ment which governed Sino-American relations in this regard during
the existence of the groups. On September 17, 1948, advisory per-
sonnel in China were charged with the establishment of a. joint advi-
sory group, known as JusMAG-China, consisting of Army, Navy, and
Air units, together with a Combined Services Group and a Joint Advi-
sory Staff. Jusmag was formally activated on November 1, 1948;
because of the deteriorating military situation its removal from China
was ordered prior to the end of the year.

THE JOINT ADVISORY STAFF

In order to coordinate the activities of the separate components of
Jusmag in their dealings with various agencies of the Chinese Govern-
ment, the Joint Advisory Staff was established. This group was
charged with the responsibility of reviewing advisory papers being

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341

transmitted to the Chinese Minister of Defense, and of providing
advice to appropriate officers of the Ministry of Defense and of the
Supreme Staff. In view of the conflicting lines of authority which
had existed under the duplicating divisions of the old National War
Council, the Chinese Minister of National Defense faced a difficult
problem in establishing clearly defined operating procedures. Among
the projects embarked on by the Joint Advisory Staff were the for-
warding of advice on the operations and functions of the Supreme
Staff, and on the various personnel, intelligence, training and supply
activites which it supervised in its overall direction of all the armed
forces of China.

THE NAVAL ADVISORY DIVISION

The Navy Advisory Group, and its successor, the Naval Advisory
Division of Jusmag, were primarily concerned with assisting the
Chinese Government in naval matters, training Chinese crews to man
the ships transferred under Public Law 512 (131 such ships were
eventually transferred) and rendering the Chinese technical advice
on the operation and maintenance of these vessels. The activities of
the group were designed to place the Chinese Government in a better
position to protect and improve the safety of navigation in its waters
and to make it possible for the Chinese to assume naval responsibility
in that area, particularly with regard to the repatriation of Japanese
and the movement of Chinese armies. To accomplish these objectives
a Naval Advisory Staff was established at Nanking and a joint
advisory organization was initiated through which advice was for-
warded to the Chinese Ministry of National Defense. The senior
member of this group advised the ranking officers of the Chinese Gov-
ernment on purely naval matters and similar staff advisory relation-
ships existed on all levels of the organization. A training group was
established at Tsingtao to form and train Chinese crews which were
to operate the ships transferred to the Chinese Navy. This unit pro-
vided not only afloat training of crews but also conducted shore-based
schools. It assisted the operating units of the Chinese Navy in
maintenance, repair, and spare parts procurement and in every way
had an immediate and direct influence on the indoctrination and train*
ing of the Chinese Navy. Other units of this group were established
at Shanghai to assist in the activities being carried on at the Kiangwan
Dockyard, and at Canton to assist in anti-piracy and anti-smuggling
operations. A final report prepared by Naval Advisory Division
personnel listed among the accomplishments of the Naval Advisory
Mission the following, to name only the most significant :

The initial rehabilitation of the Chinese naval force and the intro-
duction of modern naval thought into the various levels of the Navy

342

U. S. RELATIONS WITH CHINA

with a resultant reorganization of Chinese Naval Headquarters;
introduction of an elemental operating system, an operating corps, and
an officer training program for this corps ; establishment of a modern
naval medical service; assistance in the organization of systematic
personnel procedures ; establishment of a modern naval training center,
and the ultimate training in this center of over 300 Chinese officers
and 3,000 Chinese enlisted men.

Since the Chinese Navy was not opposed by a Chinese Communist
Navy it was never combat tested, though the assistance provided by
the Naval Advisory Group enabled the Chinese Navy to reach operat-
ing standards it would not otherwise have achieved. The Chinese
Navy did not satisfactorily perform what could have been a major
service, the complete interdiction of junk traffic by which Communist
forces in Shantung received supplies and reinforcements, nor did it
perform satisfactory service in those operations in the Gulf of Chili
when by bombardment it could have rendered notable assistance to
ground forces engaging the Communists in the Hulutao area.

During the closing months of 1948 and the early months of 1949
there was evidence that the morale of Chinese naval personnel was
so low and the will to fight so lacking that Chinese Naval Headquarters
had hesitated to permit naval vessels freedom of operations lest they
desert to the Communists.

THE AIR ADVISORY DIVISION

The Air Division of the Army Advisory Group, forerunner of the
Air Advisory Division of Jusmag, was established to assist in the
modernization of the Chinese Air Force and to provide the Chinese
technical advice on the maintenance and operation of such an air force.
During the war United States and Chinese air force personnel had
been integrated into a Chinese- American Composite Wing of the 14th
Air Force, and in combat operations conducted by this unit the Chi-
nese performed creditably. Chinese personnel to man this unit and the
post war Chinese Air Force were for the most part American-trained
under a program through which, according to the Department of the
Air Force, prior to and succeeding Y-J Day over 5,000 Chinese
received intensive instruction under a United States supervised train-
ing program.

During the war transfers of airplanes and other air materiel were
initiated in order to provide the Chinese Government with an air force
commensurate with its needs. After V-J Day transfers of planes and
equipment were continued under a program designed to provide the
Chinese with an 8% group air force, until a total of 936 planes had
been made available, the bulk of these after V-J Day. Because of the
close wartime cooperation between American and Chinese air force

THE MILITARY PICTURE 194 5-1949

343

personnel the establishment of an air force unit in the Advisory Group
represented a continuation of certain wartime assistance. After the
inactivation of the Chinese- American Composite Wing, United States
Army Air Corps cadres were placed with 13 Chinese Air Force units
and these advisory units were already in operation, when on February
26, 1946 establishment of a Military Advisory Group was authorized
by the President.

Though the ultimate objective of the Air Division was to assist
in the development of a modern air force, much of its early activities
consisted of giving the Chinese Air Force advice on receiving,
storing, and maintaining the vast amounts of United States surplus air
equipment made available to it. Simultaneously, steps were taken to
lay the groundwork for an air force organization fitted to Chinese
needs and capabilities. Work in this regard continued throughout
the existence of the Air Division and as experience dictated, changes
in organization were recommended.

In August 1946, Air Division teams advising Chinese fighter groups
actively engaged in combating the Communists were withdrawn on
the order of General Marshall to prevent further involvement in the
Chinese civil conflict. Advice and guidance continued, however, on
problems such as planning an adequate training system for the Chinese
Air Force, establishing an adequate personnel management system,
instituting coordinated supply procedures, developing suitable tables
of organization and equipment for the Chinese Air Force, and develop-
ing proper operational procedures.

Air Division teams were established at certain Chinese Air Force
bases such as Peiping, Chengtu and Hankow, and personnel were as-
signed to provide appropriate advice to units such as the Chinese
Flying School at Hangchow and the Air Technical Service Command
at Shanghai.

Despite the advisory assistance provided, the Chinese Air Force
never attained satisfactory operating standards. Bombing operations
were usually conducted from such an altitude that accurate bombing
of military targets was impossible ; strafing of enemy troops was car-
ried on at altitudes of from 1,500 to 2,000 feet; supply drops to be-
leaguered garrisons and units were made from such altitudes that
considerable quantities of the supplies dropped fell into the hands
of the beseiging Communists.

In the final report prepared by the Air Advisory Division the fol-
lowing comments were made:

“Without a doubt China’s ravaged economy cannot support an
establishment based on Sy 3 tactical groups even if the present exorbi-
tant personnel overhead were pared in half. Without some economic

344

U. S. RELATIONS WITH CHINA

recovery it cannot afford an air force of any size. Their air plans
appear to take no cognizance of national economy nor do they indi-
cate a sense of values with respect to the internal economy of the air
force. A big organization for face-building purposes is uppermost
in their thinking. Aid through low cost support or outright grants
encourages this prodigality.

“The Caf has questionable value as a military ally mainly because
of their inability to conduct their administrative and logistical func-
tions satisfactorily. It will take years of basic and specialized educa-
tion to correct this deficiency. Direct supervision by U. S. personnel
down to the departmental level in squadrons would be necessary to
produce acceptable results. Their fighting qualities in the civil war
have been of an extremely low order. However, during the Japanese
War when they had a cause in which they believed, they performed
creditably while following American flight leaders.

“An advisory program is inextricably tied to an aid program.
Advisors invariably find that aid assists them to accomplish their mis-
sion. Advisory groups are used by the recipient nations, purposely
or not, as a powerful means of fostering increases or in obtaining
favorable action on aid requests. If the recipient requests advice
merely to get aid, the advisory relationship is not sound and should
not be undertaken. It is believed that China presently falls in this
category.

“It is not believed that an objective of ‘a China that is militarily
strong’ can be attained in the foreseeable future even if it is desirable.
Therefore an advisory program based on this objective as a considera-
tion is not considered feasible.”

THE COMBINED SERVICE FORCES ADVISORY DIVISION

The Combined Services Division of the Army Advisory Group,
later reorganized under Jusmag as the Combined Service Forces Ad-
visory Division, was established to advise and assist the Combined
Service Forces of the Republic of China in the development of effec-
tive supply techniques and procedures.

During the closing year of the war against the Japanese, through
the efforts of Headquarters, United States Forces China Theater,
United States and Chinese forces in China cooperated closely in the
development of an efficient supply system under the direction of a
combined Chinese-American staff. Chinese commanders had tradi-
tionally been hesitant to commit their forces and equipment to battle
since men and rifles lost in combat were usually not replaced, and the
commander would find himself without a unit commensurate with
his rank. Because of this particular fact, the development of supply

THE MILITARY PICTURE 1945-1949

345

and replacement procedures was necessary in order to instill in com-
manders a willingness to risk their units in combat. In developing
such a supply system during the war, American personnel partici-
pated with Chinese in all phases of supply work. The establishment
after V-J Day of a Combined Services Division represented, therefore,
a continuation of wartime assistance. This group, among other con-
tributions, rendered the following assistance :

Provision of advice on the development of an organizational pat-
tern for a Chinese supply system ;

Provision of advice and assistance on the organization and con-
duct of training courses for all service schools ;

Provision of advice and assistance in the inventory, requisitioning,
withdrawal, and disposition of United States surplus equipment sold
to China and being handled by the Board of Supply of the Executive
Yuan;

Provision of advice and guidance for such vital activities as the
medical, finance, ordnance, signal, transportation, and engineering
services.

THE GROUND FORCES ADVISORY DIVISION

The most important of the various components of Jusmag and its
predecessor organizations was the Ground Forces Advisory Division,
successor to the Army Advisory Group which was established to pro-
vide an organization to advise and assist the Chinese Ground Forces.
In this connection a brief review of the activities along these lines
being conducted under the direction of Headquarters, United States
Forces China Theater, as of V-J Day is pertinent. In order to de-
velop a Chinese Army capable of effective operations against the
Japanese, General Stilwell had embarked on a program initially con-
ceived on a more limited scale by the Magruder Mission, to train and
equip 39 ground-force divisions. Under his direction five such divi-
sions were trained and equipped in Burma, subsequently performing
creditably in combat, and an organization was established in China
to carry on similar activities there, though little had been accomplished
in the latter area because of the limited military supplies being flown
over the hump. Under General Wedemeyer the 39-division program
was carried forward. The additional number of personnel and the
added tonnage of supplies arriving in China made possible its rapid
implementation. Another and by far the most significant factor in
its successful development was the close cooperation which existed
under the direction of Headquarters, United States Forces China
Theater, between Chinese and American personnel on all levels. This
mutual cooperation was of significance since the prime problem facing

346

U. S. RELATIONS WITH CHINA

United States forces in China under the command of General Wede-
meyer was the combination of Chinese manpower and resources with
American equipment and training to develop military forces capable
of meeting the Japanese in combat.

In order to assist in the development of integrated plans between
the Chinese and American units then operating in China, joint Chi-
nese-American staff meetings were held at Chungking and at other
appropriate centers, though command of the forces of each country
remained solely with the officers of that country. Schools were estab-
lished to prepare Chinese military personnel for all phases of work
with ground forces operations. United States officers were assigned
to ground units to give operational advice on all levels and under all
conditions, including active combat. This program to train and equip
Chinese divisions progressed so satisfactorily that by mid-August 1945
Chinese forces were concentrated in South China for a major offensive
operation — which was overtaken by V-J Day prior to its initiation.
Thus, as of V-J Day, there existed effective United States-Chinese
cooperation on all phases of ground force activity.

Following V-J Day United States forces in China continued cer-
tain assistance to the Chinese Government, particularly in the rede-
ployment of Chinese armies, the repatriation of the Japanese, and in
effecting arrangements for the transfer of surplus military material.
The Ground Forces Section, Nanking Headquarters Command, was
the agency originally established to continue providing advice and
assistance after the inactivation of major United States headquarters.
This section, organized in April of 1946, was succeeded by the Army
Advisory Group. Initially the advice and assistance which it could
render were limited to the organization and functioning of Chinese
Ground Forces Headquarters, and to the establishment and operation
of schools. The Division was not authorized to make recommenda-
tions concerning the organization or equipment of ground force units,
nor to carry on advisory activities directly involved in the training
of the Chinese units. These functions were the responsibility of the
Peiping Executive Headquarters in connection with its efforts to re-
duce the size of the Nationalist and Communist armies under the
terms of the Tripartite Agreement. Following the inactivation of
the Peiping Executive Headquarters, the restriction on advice con-
cerning the organization and equipment of Government units was
lifted. The prohibition against advisory activities directly concerned
with the training of Chinese Govermnent units and the operation of
training centers was relaxed later to permit Army Advisory partici-
pation in various Chinese Ground Forces training centers. The pro-
hibition against participation in training activities north of the

THE MILITARY PICTURE 1945-1949

347

Yangtze River (except for the Cavalry School at Tienshui and the
Army School at Hsuchow) was never relaxed. Consideration will be
given later to the policy determination underlying the decisions not
to relax certain of the provisions governing advisory group activities.

In a report prepared by the Ground Forces Advisory Division of
Jusmag immediately prior to its inactivation, the following analysis
of projects accomplished and unfulfilled was presented:

“The tangible results of the advice and assistance given to the
Chinese Ground Forces during this period are in general terms :

“a. The development of the Ground Forces Headquarters into an
organization capable of operating in a barely satisfactory manner.

“b. The establishment of the Ground Forces School system and the
operation of the Infantry and Artillery Schools and the Ground Staff
College in a fairly efficient maimer.

“c. The establishment of the system of Training Centers.

“d. Training of the 204th and 205th Divisions at Taiwan.

“e. A decided improvement in the operation of the Army Military
Academy at Chengtu, and its branch Officer Training Classes at Tai-
wan and Hankow, and in the operation of the Cadre Schools at Tai-
wan, Nanking, and Canton.

“The principal accomplishment of the Ground Forces Advisory
Division during this period was the indoctrination of thousands of
Chinese officers with United States principles of organization, with
United States staff methods and procedures, and with United States
methods of instruction. The results of this indoctrination together
with the benefits which may result from the close association of many
Chinese officers with United States Army officers cannot be evaluated
at this time. Those results would have become increasingly apparent
during the next two or three years.

“The Ground Forces Advisory Division did not accomplish those
things which it was hoped would be accomplished by the end of 1948.
The progress of the Chinese Ground Forces as a whole has not been
satisfactory. The following have adversely affected the desired prog-
ress of the Chinese Ground Forces to a degree far greater than was
expected in the summer of 1946.

“a. The requirements for the prosecution of the civil war.

“b. The continued deterioration of Chinese currency in terms of
its purchasing power.

“c. The lack of funds and the consequent lack of equipment, sup-
plies, housing, etc.

“d. The lack of positive ‘command pressure.’

“e. The passive and, at times, active resistance to change when that
change would reduce the power or prestige of the individual affected.

348

U. S. RELATIONS WITH CHINA

“f. The fact that each decision was not based primarily on military
considerations alone, but was influenced to a considerable degree by
"political’ and ‘personality’ considerations and the desires (at times,
almost the demands) of subordinate commanders.

“g. Incompetence of individuals occupying key positions and, until
early 1948, the physical absence from Ground Forces Headquarters of
the Chief, Chinese Ground Forces.

“h. The failure of commanders of all echelons to delegate authority
and responsibility to their staffs and subordinate commanders.”

The activities of the Group most directly concerned with assisting
the Chinese Government in its civil strife were those connected with
advisory group participation in Chinese training centers. In July
1947 the Chinese Ministry of National Defense issued a directive
establishing a ground force training center in Taiwan and in December
1947 it ordered additional centers established. In October 1947 the
Department of State informed the War Department that it agreed
to the participation of the Army Advisory Group in the training
activities of the Taiwan divisional training center.

The memorandum to the War Department setting forth the position
of the Department of State read as follows :

“The Department of State is prepared to agree to participation
by the Aag in the training center at Takao provided that (1) Aag
will not participate in any other similar training center without prior
concurrence of the Department; (2) the assistance in the form of
materials supplied by the U.S. will be limited to training aids; (3)
every effort will be made to minimize publicity to the effect that this
action constitutes direct U.S. participation in the civil war; (4)
arrangements be made that U. S. officers concerned shall be briefed by
the Embassy on the political situation in Formosa to the end that they
will so conduct themselves as to avoid Aag and the training center
from being drawn into the controversy which has developed between
the island inhabitants and the authorities of the Central Government.”

The 205th Chinese Division was selected as the first unit to be trained
in this center, but it was not until the middle of November that arrange-
ments for this had been completed by the Chinese. The first group of
American advisers arrived in Taiwan for permanent duty in December
1947. In March 1948 authorization was granted for advisory group
participation in the training activities of the Nanking Training
Center, and in July further authorization was granted for participa-
tion in the training work of Chinese Army Centers at Canton, Hankow,
and Chengtu. Limited participation in the Hsuchow Center was
likewise authorized.

THE MILITARY PICTURE 1945-1949

349

The final report of the Ground Forces Advisory Division contained
an evaluation of the work of these training centers, the substance of
which is given in the following paragraphs :

Of these Chinese training centers, only the one at Taiwan produced
satisfactory results. In this center two divisions, the 204th and 205th,
were highly trained according to Chinese standards, and two addi-
tional ones, the 201st and 206th, received training which was average
by Chinese standards. At Canton the 154th division likewise received
training judged average by Chinese standards, but unsatisfactory by
American standards. These were the only significant results produced,
although the center at Nanking made a valuable contribution in the
training of cadres for certain of the other training centers. Opera-
tions were handicapped by a lack of funds and technical equipment,
the failure to relieve units south of the Yangtze to participate in train-
ing activities, and the failure of the Chinese to attempt to implement
effectively this program despite the Generalissimo’s directive that a
modern training and replacement system would be operated. The
Nanking center, primarily designed to train individual replacements
for divisions which could not be relieved from front line duty to
receive training, was likewise handicapped by the indifference of the
Chinese to this need and their unwillingness to implement the Gen-
eralissimo’s directive initiating such a training program. Though over
17,000 replacements were passed through the center, none received any
significant degree of training owing to the unwillingness of the Chinese
to leave them in the center for any appreciable period. The failure of
the military to carry out the Generalissimo’s directive in this instance
was typical of many similar situations where orders issued by senior
Chinese officers after consultation with advisory group personnel were
successfully evaded by subordinate officers.

Though the center at Hankow could have accomplished its mission
of training individual replacements, it suffered from the same diffi-
culty as the one at Nanking. The Canton training center, primarily
designed to train cadres, was ordered established in December 1947.
In the next two to three months Chinese staff members were assigned,
but prior to the end of May little else was accomplished, when officers
from the advisory group were permitted to inspect the area, which
proved completely unsuited for the projected activities. The center
was moved to Canton in June and on July 1 American advisers
departed to assume duties there. A preliminary cadre training course
initiated in early August of 1948 was highly successful due to the fact
that 19 American trained instructors were available. However, this
school did not start regular operations until the first of November
because the three divisions concerned did not furnish their cadres

350

U. S. RELATIONS WITH CHINA

until that time, nor were the cadres ever made available simultaneously
for full and effective training.

The unsatisfactory results which attended the efforts of United
States advisory personnel to develop in the Chinese Army effective
training and replacement procedures may be attributed in part to the
Chinese attitude toward replacements and their training. Recruit-
ment was at all times disorganized. Separate commanders were fre-
quently authorized to go into an area to procure “recruits,” generally
conscripts or men impressed into duty. Provincial governors who had
their own replacement problems gave little heed to Government levies.
Conscripts enroute to army centers would frequently be impressed by
local commanders. Those who did arrive at army centers were fre-
quently assigned immediately to units without further training. At-
tempts to modernize this system met with widespread opposition, and
it was at one time reported that field commanders had demanded that
no drastic change be made in the Chinese system. At various times
in many of the Ground Forces Advisory Division projects it became
apparent that the lack of positive command pressure made successful
operations difficult, if not impossible. In view of the resistance to
change to more efficient procedures which would have reduced the
prestige of individuals affected, this lack of command pressure doomed
many projects to incompletion. Operations were influenced therefore
to a large degree not by military necessity but by political and per-
sonal factors, and the desires of the individuals concerned rather than
the basic military needs of the country.

This inability to prod the Government into effective action where
personal interests were involved was accentuated by the incompetence
of the individuals occupying high positions in the military chain of
command. Advisory activities were further complicated and hin-
dered by the fact that the Chief of the Ground Forces, General Ku Chu-
tung, was not present at Ground Forces Headquarters but remained
in command of a field unit. No decision could be made by his senior
officers without prior reference of the question to him.

Similar unsatisfactory results met the advisory group’s efforts in
May 1948 to encourage the Chinese in the establishment south of the
Yangzte of a 88-division strategic reserve to be composed of divisions
not involved in combat, which were to be trained to high standards for
use against future eventualities. Lack of adequate planning by appro-
priate Chinese headquarters for personnel and transportation, and
failure to develop the training centers previously described hindered
any effective action on this plan. When military conditions became
critical in October 1948 the Government, recognizing the need for such
a strategic reserve force, requested further assistance from the advisory

THE MILITARY PICTURE 1945-1949

351

group, but attempts to initiate action on this program were overtaken
by the rapidly developing military situation. In the final advisory
group report it was noted that because of the Chinese characteristics
of not agreeing to decentralized authority, unwillingness to place
responsibility on command levels, and a tendency to compartmentalize
all work, a large number of advisers would be required to carry such
a project forward. The conclusion set forth in this report was that
effective advisory results in such a situation depended on advisory
assistance and indirect control at least down to the regimental level.

COMPARISON OF AID TO CHINA WITH AID TO GREECE

As it became evident to all observers that the Communists were win;
ning the war, despite American aid and assistance to the National Gov-
ernment in the form of the advisory mission and transfers of equip-
ment and grants, the role of the advisory groups was reviewed. A fre-
quently recurring suggestion was that it be increased in size, that
considerable additional quantities of military equipment be made
available for transfer to the Chinese through it, and that the directive
governing its operations be relaxed, to permit more direct United
States involvement in the training and operations of Chinese army.
The most frequently raised suggestion was that China be put in the
same category as Greece with respect to the receipt of military aid
and advisory assistance.

In this connection a brief comparison of the commitments involved
if this had been embarked upon is pertinent. Greece, a country of
about 51,000 square miles, has a population of 7.4 million, approxi-
mately that of greater Shanghai and its environs. China is com-
prised of approximately 450 million people. In Greece, armed forces
of between 150,000 to 200,000 men have been opposing guerrilla units
containing approximately 20,000 effectives, holding no cities or centers
of population and being restricted for the most part to mountain border
areas. It is recognized, however, that the Greek guerrillas received
supplies from the Communist countries to the north of Greece. The
Chinese Nationalists by late 1947 had a superiority over the Commu-
nists of only about 2*4 to 1, with 2 y 2 to 3 million Government troops
facing 1 to iy 2 million Communists, who at that time controlled ap-
proximately one fourth of China’s lands and people. To have sup-
ported the Government’s military operations in China to the same
comparative degree as those in Greece were supported would have
required an advisory group of many thousands, unpredictably large
amounts of equipment, and the involvement of United States advisers
in the direction of modern large-scale war, and rather than repre-
senting a calculated risk it would have represented an incalculable

352

U. S. RELATIONS WITH CHINA

risk. To have embarked on such a project this Government would
have justly felt that there should have been more assurances of possible
success than had been provided by the previous record of the Chinese
Government in its military operations. There was no reason to think
that the furnishing of additional military assistance would substan-
tially alter the pattern of military developments in China unless a
great number of Americans were involved, possibly in actual combat,
and unless this Government were prepared to underwrite permanently
the success of the Chinese Government’s military operations. Nor
was there any evidence that the means were in sight to enable the
Chinese Government, even with extensive United States economic as-
sistance, to delay more than temporarily the rapid deterioration of
economic and political conditions. Further involvement of this na-
ture would, however, have been most acceptable to the Chinese
Government.

In this connection it should be noted that during consideration
by the Congress of an aid program for China in 1948, the House in
the enabling bill placed China in the same category as Greece with
regard to the receipt of military aid. The Senate Foreign Relations
Committee, however, rewrote the proposed bill, specifically wording
the portion dealing with additional aid through grants in order to
avoid having China placed in the same category as Greece with respect
to military aid.

During debate in the Senate on March 29, 1948, regarding the China
aid program, Arthur H. Vandenberg, Chairman of the Committee on
Foreign Relations of the Senate, made the following statements :

“The Committee on Foreign Relations wishes to make it unmistaka-
bly clear, in this, as in all other relief bills, that there is no implication
that American aid involves any continuity of obligation beyond
specific, current commitments which Congress may see fit to
make. ... We do not — we cannot — underwrite the future.
. . . It is a duty to underscore this reservation in the case of
China because we find here many imponderables as a result of the
military, economic and social pressures which have understandably
undermined her stabilities, and prevented or postponed the internal
reforms which even her surest friends readily concede to be not only
desirable but essential for the Chinese people and for the Nationalist
Government. ... We cannot deal with the Chinese economy on
an over-all basis, as we have done in the European recovery program.
China is too big. The problem is too complicated. ... As in
the case of Greece and Turkey, your Committee recognizes that mili-
tary aid is necessary in order to make economic aid effective. It pro-
poses to make military supplies available, at China’s option. For

THE MILITARY PICTURE 1945-194 9

353

this or any other purpose, at China’s option, a grant of $100,000,000
is included in the bill. . . . Your Committee believes, as a matter

of elementary prudence, that this process must be completely clear
of any implication that we are underwriting the military campaign
of the Nationalist Government. No matter what our heart’s desire
might be, any such implication would be impossible over so vast an
area. Therefore, for the sake of clarity, we prefer to leave the initia-
tive, in respect to these particular funds, in the hands of the Nationalist
Government. . . . Under another law, the United States will con-

tinue to furnish military advisers to the Government of China at her
request. . . . Their capacity is advisory only. Nothing in the
pending bill alters these limitations in any aspect. . . . We have

undertaken to write this new provision into the law in a fashion which
at least commits us to make military cooperation on our own responsi-
bility.”

During the same debate Senator Connally said :

“There is an item of $100,000,000 which is not earmarked. . . .

It is in the nature of an outright grant to China for her use, under
her own responsibility for whatever great and critical need may arise.
There is not a word in the bill regarding military supplies or military
aid. It is, of course, entirely probable that the $100,000,000 grant
may, if the exigency should arise, be utilized by the Central Govern-
ment of China for the purchase of munitions, equipment and arms.

. . . This measure is the best plan or device we could bring about

in the Committee to extend aid to China, without making hard and
fast commitments which we did not feel it was wise to make.”

The Greek-Turkish proviso was deleted by the Congress prior
to the passage of the enabling bill. Following passage of the enabling
legislation the House of Representatives inserted into the appropria-
tion bill passed by it on J une 4, 1948, the proviso that aid being extend-
ed to China be placed in the same particular category as that being
extended to Greece and Turkey. On June 15, 1948, the Senate approved
certain amendments to the foreign-aid appropriation bill, 1949, one of
which removed the Greek-Turkish proviso contained in the House
bill. On June 19, 1948 the foreign-aid appropriation bill was sent to
conference. The conference report shows that the total amount of aid
to China was reduced from $463 million to $400 million, the Greek-
Turkish proviso was removed, and the $125 million grants were thus to
be made available to China in accordance with section 404 (b) of the
China Aid Act of 1948. The Foreign Aid Appropriation Act, 1949,
was then passed by the Congress on the same day. 4

4 For an explanation of these various figures, see chapter VIII,

354

U. S. RELATIONS WITH CHINA

IY. MILITARY MATERIEL AND SERVICES PRO-
VIDED THE CHINESE GOVERNMENT SINCE
V-J DAY“

SUMMARY

Any assessment of military aid provided to the Chinese Govern-
ment by the United States since Y-J Day must take into account the
fact that no dollar value can be put on three of the most vital forms of
aid — that rendered by Headquarters, United States Forces China
Theater, in planning the redeployment of the Chinese Army and the
repatriation of the Japanese, aid rendered by the Marines in North
China in occupying key areas and maintaining control for the Gov-
ernment of essential lines of communication, and aid provided by the
advisory groups.

Apart from these forms of aid, the American Government since V-J
Day has authorized military aid for the Chinese Government in the
form of grants and credits totaling approximately 1 billion dollars.
During this same period an additional 1 billion dollars of economic
aid has been authorized. It was, of course, inevitable that economic
assistance had indirect military value.

There is set forth in annex 172 a detailed account with accom-
panying tables of the various categories of this American aid.
Among the most important of these were 781 million dollars of
post-V-J Day lend-lease aid, including sufficient materiel to complete
the remaining 50 percent of the wartime program designed to equip
39 Chinese divisions, 101 million dollars of surplus military equip-
ment including over 300 aircraft and very large quantities of ammu-
nition, and 125 million dollars under the China Aid Act of 1948, ex-
pended largely for military equipment during 1948 and 1949,

It is evident from a review of these transfers of military equipment
that American aid to the Chinese Government since V-J Day in the
form of materiel and services has been extensive. It has likewise been
continuing except for that period starting during General Marshall’s
mediation efforts when there was a ban on the export of munitions
from this country and its Pacific bases.

SECRETARY MARSHALL’S TESTIMONY ON THE 1946 EMBARGO

The prohibition on the export of munitions from the United States
to China was placed at a time when the truce between the armies of the
Chinese Government and the Chinese Communists was breaking down
and hostilities were increasing on a wide scale. In this connection

4 * See annex 171 for a study of American military materiel and services pro*
vided to the Chinese Government since V-J Day.

THE MILITARY PICTURE 1945-194 9

355

Secretary Marshall’s testimony before the House Committee on For-
eign Affairs on February 20, 1948, is of interest. Certain portions of
the testimony follow :

“Mr. Vorys. As I understand it, we had an embargo for 10 months
on shipment of arms to China and then the ammunition that we did
authorize to be shipped, which they purchased, has not gotten to
the troops yet. Now, why is that ?

“Secretary Marshall. Do you mean the original embargo and then
the later developments?

“The embargo was in August, 1946, and the release was in May of
1947.

“Mr. Vorys. That is about 10 months.

“Secretary Marshall. Yes.

“Mr. Vorys. As I understand it, the so-called generalissimo ammu-
nition which was authorized to be shipped has not gotten to the troops
yet. I am informed that part of it had not left the United States.
Now, why is that? They cannot fight without ammunition.

“Secretary Marshall. That is quite evident.

“This particular matter is a shipping proposition. Mr. Butterworth
can give you some of the details but I can state some of the things
offhand. 5

“In the first place, the embargo was placed in August, I think, of
1946, by me, because at that time the situation was threatening to break
down entirely. The fighting in north China had been held pretty
largely in abeyance since the agreements reached on January 10, 1946,
except in Manchuria, where a new focus of fighting had developed.

“In the endeavor to mediate this, and prevent its spreading all over
North China, we were put in the position of acting in a mediatory posi-
tion on the one hand and shipping in military supplies on the other.
At that time the Chinese Government had sufficient munitions for their
armies and there was no embarrassment to them.

5 Details were given in the following letter of Feb. 24, 1948, from Secretary
Marshall to Representative Charles A. Eaton :

“You will recall that in the course of the public hearings on February 20, 1948,
before the Foreign Affairs Committee of the House of Representatives on the
China aid bill Mr. Vorys queried whether the Chinese Government had received
the so-called generalissimo (7.92) ammunition sold to the Chinese Government by
the Foreign Liquidation Commissioner under a contract dated June 25, 1947.

“It has been ascertained from the Department of the Army that the Chinese
Government shipped this ammunition from Seattle to China on July 14 and
August 11, 1947. The first shipment represented slightly more than one-third of
the ammunition and the second shipment covered the balance.

“Would you please be so good as to apprise Mr. Vorys of this information and
to incorporate it in the record of the hearings.”

356

U. S. RELATIONS WITH CHINA

“There were incidents, such as the explosion of the dump in Shang-
hai, and more particularly the very heavy reported losses of munitions
to the Communist forces by defeats suffered in the field by the Govern-
ment forces. When the release date was given which was effected bv
taking off any refusal to grant export licenses —

“Mr. Vorys (interposing). I may have used the word ‘embargo’
improperly.

“Secretary Marshall. It was in effect an embargo, on military sup-
plies. There were amendments to that in relation to spare parts for
airplanes, and items of that sort.

“Of course, there was a great deal that was coming in through the
surplus property transactions, to the degree that we could reach a
settlement with the Chinese authorities who were negotiating the
surplus property agreements.

“Then we come to the period in May, when that export license
embargo was removed. Since that time I think there was only one
important commercial contract made by the Chinese Government.”

The prohibition on the export of munitions from the United States
or its Pacific bases to China became effective in the United States on
July 29, 1946, and in the Pacific in mid- August 1946. On October 22,
1946, the ban was modified to permit the Chinese to purchase civilian
end-use items under the 8i/ 3 Group Program for the Chinese Air
Force and on October 31, 1946, the Far Eastern field office of the Oflc 6
was authorized to notify the Chinese Government that it was ready
to negotiate the sale of such civilian end-use items. The Chinese in-
formed the Oflc that they were interested in procuring these items
only if eventual provision of items for this program was likewise
assured, though civilian end-use items would have been valuable in
the maintenance and operation of transport planes and airport instal-
lations. The Chinese concluded no contracts covering these items until
over a year later on November 6, 1947.

In April and May 1947, prior to the lifting of the ban on the export
of arms and ammunition, the United States Marines turned over
(abandoned) to the Chinese Government forces in North China the
considerable quantities of small arms and artillery ammunition men-
tioned in annex 171. These and similar transfers continued during
the summer months until by early September approximately 6,500
tons of ammunition had been transferred at no charge to the Chinese.

On May 26, 1947, the Secretary of State directed that the prohibi-
tion on the issuance of export licenses covering the shipment of arms
and ammunition be removed.

6 Office of the Foreign Liquidation Commissioner.

THE MILITARY PICTURE 1945-1949

357

There is set forth in annex 173 a description of the principal con-
tracts for surplus military equipment and commercial contracts which
the Chinese Government concluded during the year following the
lifting of the embargo. As will be noted these contracts covered very
considerable quantities of arms, ammunition and combat planes.

AMERICAN EQUIPMENT CAPTURED BY THE CHINESE COMMUNISTS

Much of the equipment furnished by the United States to China
prior to and after V-J Day has fallen into the hands of the Com-
munists — the greatest losses starting in mid-September 1948, though
substantial losses had occurred before that time. In a report of early
November 1948, the Embassy stated that in the battles of Tsinan, the
Liaoaning Corridor, Changchun and Mukden, the Nationalists lost 33
divisions, over 320,000 men, including 8 divisions 85 percent United
States equipped. Losses of equipment included approximately 100,000
American rifles and 130,000 rifles of other origin, together with large
quantities of military materiel. It was indicated that there was vir-
tually no destruction of equipment accomplished by the Nationalists
prior to their defeats during the period under consideration.

In early December 1948 the Military Attache at Nanking reported
that “seventeen originally United States equipped divisions have been
totally lost — Chinese Communist forces claims are that 70 per cent
of United States equipped forces lost by November 2. After the fall
of Manchuria CSF [Combined Service Forces of Chinese Nationalist
Army] high ranking officer told an American officer 80 per cent of
United States equipment had been lost by capture and attrition. It is
believed the figure of 80 per cent loss of all United States equipment
is a sound basis on which to determine amounts lost — of this amount at
least 75 per cent exclusive of ammunition has been captured by the
Communists.” It is now estimated that in the 4/ 2 months from the fall
of Tsinan in September to the fall of Peiping at the end of January,
the Government lost approximately a million men and 400,000 rifles.
Losses since the end of January include those in the Nanking-Shanghai
area in April and May. Losses of air force materiel, while not so seri-
ous, have occurred, and it is at present known that the Communists
have acquired by defection a number of planes of American origin.

The most significant loss of naval equipment was that of the cruiser
Chungking , transferred to the National Government by the British,
though there have likewise been defections of minor naval units.

There is some question as to whether the Russians supplied the Com-
munists with Russian equipment. It*is certain, however, that large
stocks of Japanese equipment were abandoned in Manchuria in such
o way as to enable the Communists to gain possession of them. Charges

358

U. S. RELATIONS WITH CHINA

have been made in the press that the Russians utilized J apanese equip-
ment from Manchuria to manufacture Japanese-type equipment for
the Communists. As indicated previously, of the Japanese stocks in
China on V-J Day the Government seized by far the larger portipn.
Also bearing on the question of equipment is the relative capacity of
arsenals operated by the Nationalists and the Communists. Until
the Government’s military collapse in the fall of 1948, the major
arsenals in China and Manchuria were held by the Government — 15
major arsenals and 5 subarsenals producing quantities of small arms
and small arms ammunition adequate to sustain normal operations of
the Chinese Army. The Government also had access to arms markets
in foreign countries other than the United States and in the years fol-
lowing Y-J Day purchased considerable quantities of military ma-
teriel through such sources.

ADEQUACY OF THE GOVERNMENT’S MILITARY SUPPLIES

Prior to the defeats suffered late in 1948, the Government enjoyed
a marked superiority in equipment over the Communists in all types
of equipment. This fact confirms the statements of military observers,
including General Barr, that the defeats suffered by the Chinese Na-
tionalist armies were not attributable to a lack of equipment. 7

General Barr on November 16 reported to the Department of the
Army as follows :

“I am convinced that the military situation has deteriorated to the
point where only the active participation of United States troops
could effect a remedy. It has been obvious to me for some time that
nothing short of a United States organization with the authority and
facilities available to you on V-J day including a United States fed
and operated supply pipeline could remedy the situation. Military
materiel and economic aid in my opinion is less important to the
salvation of China than other factors. No battle has been lost since
my arrival due to lack of ammunition or equipment. Their military
debacles in my opinion can all be attributed to the world’s worst
leadership and many other morale destroying factors that lead to a
complete loss of will to fight. The complete ineptness of high military
leaders and the widespread corruption and dishonesty throughout
the Armed Forces, could, in some measure, have been controlled and
directed had the above authority and facilities been available.
Chinese leaders completely lack the moral courage to issue and enforce
an unpopular decision. . . .

“I do not believe that the United States should advise or assist in
any way such a [coalition] government, with its Communist domi-

T See annex 174.

THE MILITARY PICTURE 1945-194 9

359

nated Armed Forces, and recommend, that in this event, Jusmag be
withdrawn in accordance with plans outlined . . . [on] 13 Novem-
ber. . . .

“The Generalissimo has lost much of his political and popular
support. It is unknown to what extent the nation would support his
attempt to continue the present government in a new move. It is
believed that such a move will only delay the end of the war and that
the Communist forces will eventually overwhelm the government
wherever it locates itself. This will occur before the Government,
even with United States assistance, can train, equip, and put into the
field sufficient forces to stem the tide. For this reason unless all-out
United States military assistance, including employment of United
States Forces, which I certainly do not recommend, is given the gov-
ernment in its new location, I recommend that Jusmag be withdrawn
in accordance with present plans.”

In the final report of Jusmag the portion dealing with the 125 mil-
lion dollar grants contains this statement: “In general troops in
combat have had adequate supplies of weapons and ammunition, and.
their reverses are attributable to other causes than lack of equipment.”

CHAPTER VIII

The Program of American Economic Aid

1947-1949

The economic and financial assistance given to China by the United
States during World War II, beginning with the lend-lease assistance
of 1941 has been outlined in chapter I. The problem of additional
assistance has been noted in other intervening chapters, especially in
chapter VI. The aid in money and supplies given in support of the
military efforts of the Chinese Government has been described in
chapter VII. This chapter continues the account of economic and
financial assistance rendered during 1947, 1948, and the first months
of 1949. Before this assistance is described, however, it will be helpful
to present a brief survey of the economic situation in China in 1947.

I. THE ECONOMIC SITUATION IN 1947

INTERNAL ECONOMIC FACTORS

Fundamental in the situation which caused the United States Gov-
ernment to press for comprehensive reforms was the increasingly seri-
ous economic situation during the first half of 1947. Mention has
previously been made of the accelerating pace of inflation which was
occasioned primarily by the financing of large Government budgetary
deficits with new currency notes. The domestic price level in China
had risen steadily throughout the war with J apan. This process had
continued without any real check through 1946. Indeed, the rate of
price increases had far outstripped the rate at which new currency
was being issued, a signal that public confidence in the monetary unit
had fallen significantly.

This continuing depreciation in the value of the Chinese currency
was of course a matter of concern to the responsible officials of the
National Government. Through 1946 and into 1947, the Government
sought to maintain control of the inflationary process by open market
sales of gold from official reserves. This provided opportunities,
of wdiich advantage reputedly was taken frequently, for collusion

360

THE PROGRAM OF AMERICAN ECONOMIC AID

361

between informed Government officials and speculators. While the
Government’s absorption of currency by means of gold sales undoubt-
edly allayed somewhat the rate of price increase, the policy had no
effect upon the basic inflationary forces, while it dissipated the Gov-
ernment’s foreign exchange assets without a compensating inflow of
commodities. Although there was no sharp, panicky decline in the
value of the currency through 1946 as in later years, prices rose steadily
during 1946 at an average rate of about 12 percent per month. The
absence of explosive price rises was due, in large part, to the great
influx of imported consumer goods (including Unrra stocks) in the
immediate post-war period.

In January 1947 the Shanghai price level rose at a rate well above
the 1946 average and in early February there occurred a violent up-
heaval in the Shanghai money market, marked most spectacularly by
a rise in the price of the United States dollar in terms of C. N. C.
(Chinese National Currency), from approximately 7,700 to 18,000.
This “crisis” apparently was brought on by a wave of speculative
activity in Shanghai rather than by the introduction of any important
new factor. It came, however, as a severe shock to the National Gov-
ernment and was a factor contributing to the resignation in Marcli
of the Prime Minister, Dr. T. Y. Soong. The Government’s action,
which came promptly, was drastic and initially effective. It outlawed
speculative activity in gold and foreign exchange, abandoned the gold
sales policy, and fixed a new official exchange rate of C. N. 12,000 to
the United States dollar. The police measures against exchange and
gold speculators were successful only temporarily, as was true in a
later experiment of the same nature, but the immediate crisis was in
fact surmounted.

CHINESE REQUESTS FOR AMERICAN AID

It was during this period of inflationary upsurge that the National
Government renewed its requests for American aid. On February
4, Prime Minister Soong called on the Ambassador to express his con-
cern and alarm over the deteriorating economic situation. On Feb-
ruary 6, he gave to the Ambassador an aide-memoire dealing directly
with the need for American financial aid :

“I am not trying to be an alarmist. Last summer when people were
freely predicting that economic collapse would come in a matter of
weeks, I told General Marshall and yourself that it would be a ques-
tion of many months before the eventuality had to be faced.

“Even as General Marshall was leaving, I expressed the hope that
although the economic situation in China is particularly difficult to
predict and while 1947 will be a year of terrific difficulties, it might be

362

U. S. RELATIONS WITH CHINA

possible to hold through because there were then visible signs of im-
provement particularly in exports and in prospects of increased agri-
cultural production. The rapid turn for the worse during the last
few weeks as evidenced by the figures I have given you have radically
altered the picture.

“We had all hoped that we would not have to approach the United
States Government for financial assistance until the State Council
and the Executive Yuan have been reorganized. The economic situa-
tion, however, has forced our hands.

“In fact, the economic situation has led the minor parties to sit on
the fence, as they would naturally not like to be identified with a
government that might collapse. Moreover, this situation has un-
doubtedly stimulated the Communists to greater efforts to weaken
the government and refuse to be in a conciliatory mood.

“I am convinced that only one thing will steady the economic situa-
tion and improve the political outlook and that is some concrete form
of American assistance and support. Perhaps the simplest, most
helpful form of assistance would be an immediate credit of $150 mil-
lion for cotton or cotton and wheat for a term of ten years as it would
immediately favorably affect our balance of payments, secure the with-
drawal of fapi 1 as the products are sold, assure the people of concrete
American assistance. Politically it will encourage the wavering ele-
ments in the minor parties to join the government, and it would en-
courage the progressive members of the Government to press forward
for a speedy reorganization. A smaller sum than the figure men-
tioned will not have the effect necessary in this emergency.

“On the other hand the nature of this credit goes as far as possible
from any charge of direct aid for military use.

“In addition if someone like Blandford, in whom the Chinese Gov-
ernment had confidence and had given access to all economic informa-
tion could visit the United States immediately before General Marshall
leaves for Moscow, he would be able to explore what further American
financial and advisory assistance might be given and under what cir-
cumstances this aid might come.

“I consider this particularly important as it would mean continuing
aid with a definite program of action for both China and the United
States.”

At this point the immediately critical aspect of the Chinese economic
problem was related closely to the state of domestic public opinion and
public confidence within China. As has been noted, the underlying
factors in the situation were almost without exception heavily un-
favorable: a grossly unbalanced budget, a large deficit on current

1 Fapi is a Chinese term for national currency.

THE PROGRAM OF AMERICAN ECONOMIC AID

363

balance of payments account, widespread disruption of inland trans-
portation, and a low volume of internal industrial production and
trade. On the other hand, China still had official reserves of gold
and United States dollars in excess of 400 million dollars. Foreign
exchange assets of private Chinese citizens probably were at least as
large. Cessation of domestic gold sales by the Chinese Government
meant that it would be possible to finance essential imports out of
official reserves for a considerable period without depleting these re-
serves below the point of minimum working balances. The mobiliza-
tion of privately held foreign exchange assets obviously presented
difficult problems, but it could be hoped that some additional resources
could be obtained through this means. The National Government still
held important industrial assets taken over from the J apanese, notably
a large portion of the cotton textile industry. If placed on the market
for sale on terms inducive to private buyers, these assets might have
provided an important counterinflationary source of revenue while
beginnings were being made upon a reform of the hopelessly inade-
quate budgetary and tax-collecting mechanisms.

Moreover, substantial programs of external assistance to China were
either at the peak of their implementation or represented significant
potential contributions to the Chinese economy. The Unrra pro-
gram for China had got under way slowly. This had been due, in
large measure, to the limited absorptive capacity of China, particularly
the inadequacy of distribution facilities at Shanghai, and in part to
the shipping strike on the west coast of the United States during the
fall of 1946. As a result of its delayed implementation, it was clear
that the large Unrra China program would be carried on throughout
1947, considerably beyond the cessation of Unrra in other areas of
the world. Scheduled deliveries of Unrra goods to China during
1947 amounted to a total value at Chinese ports of close to 300 million
dollars.

The Lend-Lease “pipe line” credit from the United States of 51.7
million dollars, and the Canadian credit of 60 million dollars, had
been only partially drawn upon by January 1947. Surplus property
under the 1946 bulk sale agreement was just beginning to arrive in
China. Of authorized Export-Import Bank credits for China, 54.6
million dollars had not been drawn. In April 1947 the United States
Maritime Commission authorized the sale to China of surplus war-
built merchant vessels on terms involving credits of 16.5 million
dollars. All these programs made available a continuing flow of
usable and salable resources into the Chinese economy.

Despite the substantial volume of external resources, both Chinese
and foreign, available to China during this period, it was recognized
by the Department of State that additional assistance to China might

364

U. S. RELATIONS WITH CHINA

serve in some degree to strengthen public confidence in the National
Goverment and to aid that Government in obtaining the support of
minor political parties.

CONSIDERATION OF EXPORT-IMPORT BANK CREDITS

One possibility was the extension of credits by the Export-
Import Bank, which still had under earmark for China the sum of
500 million dollars recommended by General Marshall in 1946.
Earlier discussions of credits to China with officials of the Bank had
met with a negative response, the Bank view being based mainly upon
the fact that developments in China cast the gravest doubts upon the
National Government’s capacity to service additional loans. On
March 4, 1947, Secretary Marshall directed that discussions between
the Department and the Bank be resumed, specifically with reference
to loans for reconstruction of the Canton-Hankow Railway, the de-
velopment of a new harbor at Tangku, and for rehabilitation of certain
coal mines. The Bank expressed its continuing skepticism regard-
ing China’s ability to repay additional loans and its doubts as to the
appropriateness of the policy of using Export-Import Bank funds
for reconstruction purposes. Nevertheless, it was stated that the
Bank was ready to consider specific applications for credits.

At this time, however, the National Government was preparing the
details of a request not for individual project credits but for a large-
scale comprehensive program of financial assistance. This was made
known to the American Embassy in Nanking on April 12, and on May
8 Ambassador Koo in a conversation with Secretary Marshall asked
on instructions from his Government that a loan of 1 billion dollars be
advanced to China. On May 13 Ambassador Koo sent to the Secretary
of State an informal memorandum summarizing his earlier statement
and adding that details of the plan for the proposed loan would be
submitted “when it becomes clear that the request for the loan is accept-
able in principle to the United States Government.”

Acceptance “in principle” of the Chinese loan proposal was felt
to be impracticable in the absence of information as to the details of
the proposal. The Chinese Embassy was so informed on May 22.
At the same time, the Department of State made it clear that a more
detailed explanation of the Chinese proposal would receive careful
examination.

Subsequently, on May 27, the Chinese Embassy submitted a further
memorandum requesting that the 500 million dollars earmarked by
the Export-Import Bank for China be advanced to finance the pur-
chase of equipment and materials for a list of reconstruction projects,
and that an additional 500 million dollars be sought from the Con-

THE PROGRAM OF AMERICAN ECONOMIC AID

365

gress, to be available over a three-year period, for the purchase of
commodities such as cotton, wheat, and petroleum, which, upon their
sale in China, would provide the Chinese currency needed to meet
internal costs of the reconstruction program.

China’s need for foreign financial aid was sharply distinguished
by the Department of State from that of certain European countries
for which the extension of assistance was being actively considered by
the United States Government. The virtually complete exhaustion
of the foreign exchange resources of these European countries made
it imperative that aid be given on an emergency basis if they were to be
able to continue the import of vital necessities. China’s foreign
exchange reserves in mid-1947 were, by contrast, still substantial in
relation to the minimum import deficit of that country. Thus, it was
apparent that a request to Congress for the appropriation of funds for
a large-scale program of aid to China could not be justified at that time
as an emergency measure to enable continued importation of essen-
tial commodities. This was among the considerations reflected in
Secretary Marshall’s statement to Congress on May 20 that no further
requests for foreign-aid funds were contemplated during the current
session. The Chinese Embassy was informed of this statement with
reference to its request for 500 million dollars to be authorized by
Congress.

The question of renewal of the earmark of 500 million dollars by
the Export-Import Bank was already under consideration, quite apart
from the Chinese Embassy’s request for extension of credits by the
Bank in that amount. It was concluded by the Export-Import Bank
that there was no realistic prospect that China could receive or effec-
tively use 500 million dollars for reconstruction projects within the
coming fiscal year, and that the earmark as such should not be con-
tinued beyond its expiration on June 30. The Department of State
concurred in this decision, at the same time making clear its position
that the lapse of the earmark should not preclude consideration of
specific requests for credits to China. In connection with the lapse of
the earmark, the Export-Import Bank on June 27 issued the following
statement :

“. . . the Bank is prepared to consider the extension of credits for
specific projects in China notwithstanding the expiration on June 30 of
the earmarking of $500,000,000 of the Bank’s fund in April 1946 for
possible further credit to Chinese Government agencies and private
enterprises.

“The Bank has heretofore taken action to bring to an end its pro-
gram of large emergency reconstruction credits and is reverting to
its primary objective of financing and facilitating specific American

366

U. S. RELATIONS WITH CHINA

exports and imports, including the financing of American equipment
and technical services for productive enterprises abroad which will
contribute generally to foreign trade expansion.

“In its consideration of any application, the Bank will observe the
basic principles which guide its lending activities in all areas of the
world. In pursuance of the policy laid down by Congress, the Bank
will make only loans which serve to promote the export and import
trade of the United States, which do not compete with private capital
but rather supplement and encourage it, which are for specific pur-
poses, and which, in the judgment of the Board of Directors, offer rea-
sonable assurance of repayment. As a general rule, the Bank extends
credit only to finance purchases of materials and equipment produced
or manufactured in the United States and technical services of Amer-
ican firms and individuals, as distinguished from outlays for materials
and labor in the borrowing country.”

Prior to this announcement, the Department of State on June 17
informed the Chinese Embassy of the decision to permit expiration of
the earmark. It was noted, however, that the Department was pre-
pared to support early and favorable consideration of loans to China
for individual reconstruction projects.

Pursuant to the conversation with representatives of the Depart-
ment of State on June 17, the Chinese Ambassador on June 27
submitted to the Export-Import Bank a list of credit applications
totalling 268.3 million dollars for reconstruction projects. These were
not accompanied by an indication of priority nor were they in general
supported by sufficient financial and economic analyses to provide an
adequate basis for conclusive consideration by the Bank. On July
31 the Ambassador requested an Export-Import Bank credit of 200
million dollars for purchases of raw cotton during 1947 and 1948. This
application was refused by the Bank on the ground that China’s avail-
able cotton supplies were adequate for mill requirements until mid-
1948. The Bank, however, indicated its readiness to consider an appli-
cation for a cotton credit in the spring of 1948.

At the time of the Bank’s consideration of the proposed cotton
credit, the Department of State representative on the Board of Direc-
tors, while concurring in the above action, recalled that when the ear-
mark of 500 million dollars was permitted to lapse, a press release
had been issued expressing the Bank’s willingness to consider individ-
ual credits to China. He went on to make the following general
statement which he requested be incorporated in the records of the
Bank:

“From the standpoint of U.S. foreign policy the Department of
State urges early and favorable consideration of individual Export-

THE PROGRAM OF AMERICAN ECONOMIC AID

367

Import Bank credits to China in accordance with the statutes which
guide the Bank’s lending activities. The Department is concerned
because of the urgency of the situation in China and regards it as
highly desirable from the standpoint of U.S. foreign policy that
there be some prompt manifestation of economic assistance to that
country. The Department hopes that the Board of Directors of the
Export-Import Bank will at an early date conclude their considera-
tion of the individual loan applications which have been submitted
by the Chinese Government or by private enterprise, with a view
to decision as to the extent to which such projects can qualify for
Export- Import Bank financing.”

During the late winter and early spring, the Congress had been
considering the proposed United States Foreign Belief Program,
which was intended to meet the requirements of individual countries
for emergency assistance in the post-UNRRA period. Although the
case of China was not identical with that of certain European coun-
tries — in the sense that unless emergency aid were .made available to
certain European countries, essential imports could not have been
obtained — the Department of State nevertheless believed that China’s
inclusion in the program was justified on the ground that it would
be desirable to assist China to conserve its dwindling reserves of
foreign exchange for purchases other than commodities needed for
current consumption. Of the 322 million dollars appropriated by
the Congress, therefore, a sum of 27.7 million dollars was earmarked
for a China program and an agreement to govern the extension of this
aid was concluded with the Chinese Government on October 27, 1947.
This amount, plus an additional sum of 18 million dollars set aside
for China in a supplemental appropriation in December, was expended
for purchases of rice, wheat, wheat flour and medical supplies for
distribution in China’s coastal cities where, at the instigation of the
Department of State, rationing systems were instituted.

PROPOSALS FOR A SILVER LOAN

Concurrent with its consideration of Chinese requests for Export-
Import Bank and Congressional loans, the United States Government
was confronted with a tentative Chinese proposal for large-scale
assistance as an extreme measure to bring about currency stabil-
ization in China. The rapidly deepening Government budgetary
deficit had sent the note issue and prices to astronomical figures.
In its search for a remedy, the Chinese Government made cautious
inquiries of the United States Embassy in Nanking regarding the
possibility of a large United States loan of silver which it was

368

U. S. RELATIONS WITH CHINA

proposed should be minted and introduced into circulation as a
partial substitute for and stabilizing influence on the paper currency.
During the second week of June 1947, the Governor of the Central
Bank approached officers of the Embassy with proposals along this
line. He emphasized that they were purely tentative and informal, that
no detailed plans had been worked out, and that he would prefer to
await Washington’s informal response before drawing up more specific
plans. At the same time he submitted an undated and unsigned “memo-
randum on the Chinese currency” for transmittal to Washington.
The Embassy, in forwarding the memorandum, described it as “a
hasty and rough job which somewhat cursorily disposes of some of the
technical comments” that the Embassy had made, but suggested that,
in view of the deterioration in the Chinese currency situation, careful
consideration be given to any reasoned proposal advanced by the Gov-
ernor concerning use of silver.

Four days later the Secretary of State made a request of Secre-
tary of the Treasury Snyder for the opinion of Treasury experts as to
whether or not a silver loan to China would be practical and would
establish among the Chinese people their former confidence in the
silver dollar to offset their existing lack of confidence in paper
currency. He emphasized that he did not believe that a silver loan to
China would be favorably considered by Congress at its current ses-
sion ; that he did not have in mind proposing such a loan to Congress ;
but that he wanted to clarify for himself the various possibilities with-
out regard to these considerations.

Pursuant to Secretary Marshall’s inquiry, officers of the Treasury
and State Departments jointly considered the Chinese silver proposal.
They reached a conclusion that was sent to the Embassy for transmit-
tal to the Chinese Government in the following message of July 9,
1947:

“It is thought that a loan for currency stabilization is not possible
at this stage. Such a loan would, in any case, require Congressional
action. It is recognized here that reintroduction of silver coins may
ultimately provide a means of achieving stabilization, but it is con-
sidered that (1), no monetary measure could have an appreciable
effect in the face of continued massive deficit spending, and (2), as
the proposal sketched in the Central Bank Governor’s memorandum
indicates, if adopted, the flight from fapi might be more seriously
accentuated.”

This view was subsequently confirmed and elaborated by the Treas-
ury Department, which, in response to Secretary Marshall’s inquiry,
stated :

THE PROGRAM OF AMERICAN ECONOMIC AID

369

“The Treasury Department is of the opinion that there is little merit
to the proposal to introduce silver currency in China under existing
conditions. Opportunities for graft and favoritism are involved in
this proposal such as were afforded under the gold sales program of
1942. The depreciation in the value of the paper currency would
occasion a drain upon the government stocks of silver coins, a large
part of which may go directly into hoarding. It is our view that the
completion of the program of substituting silver coins for paper cur-
rency might involve an impossibly large volume of silver coins under
such circumstances. It is also possible that the introduction of silver
coins on a partial scale such as is proposed by the Chinese Government
might actually bring about a situation where the paper currency would
depreciate in value faster than it would without the silver coins, and
accelerate the deterioration in Chinese fiscal conditions. Any associa-
tion on the part of this Government in the provision of an initial
stock of silver coins might involve it in a moral responsibility to pro-
vide much larger amounts of silver which would be required for the
development of a new currency.

“In the presently thin world silver market, any program for the
remonetization of silver in China would inevitably drive up the price
of silver, and entail an outlay on the order, possibly, of half a billion
dollars. Even if the presently circulating paper currency were com-
pletely replaced by silver coins there is no present indication that the
Chinese government’s budget would be balanced and that the govern-
ment would not again resort to the issuance of paper currency to
finance its deficit.

“China’s basic economic difficulties are a cause rather than a result of
the increasing instability of her currency. I do not need to elaborate
on this theme — the heavy government deficits which are being met by
continuous expansion of the paper currency, and the lack of internal
peace are at the root of China’s troubles. In our opinion, the appro-
priate time for a revision of the Chinese monetary system will come
when a broad program of internal reform is developed. A remone-
tization of silver at that time would have advantages and disadvan-
tages which would need to be reviewed in the light of existing cir-
cumstances, and other possible financial and monetary measures which
might be taken.”

THE MOUNTING ECONOMIC CRISIS IN CHINA

Meanwhile, the economic situation in China had continued to
worsen. After the initial brake to inflation provided by the emergency
measures in February, prices had resumed their upward trend. By
August the Shanghai wholesale price index had reached a point 300

370

U. S. RELATIONS WITH CHINA

percent above the February level, and the open market price for the
United States dollar had risen to 45,000 C.N. In September and
October this upward movement continued without check. No serious
effort had been made to institute even the minimum improvements in
budgetary and fiscal practices needed to alter the conditions giving
rise to inflation.

Similarly, the drain on China’s foreign exchange reserves had con-
tinued. By October official gold and United States dollar reserves
were estimated to have fallen to a level of about 300 million dollars,
with no prospect that their eventual depletion could be avoided.
Private exchange holdings had not been tapped. A step toward a
more realistic approach to the import-export problem had been taken
when the principle of a fixed dollar exchange rate was abandoned in
August in favor of a policy of flexible official rates. After giving an
initial impetus to exports, however, exchange policy gradually reverted
to the previous practice of more or less rigid official exchange rates.

Progress had been made in certain sectors of the Chinese economy.
Food production had increased, the textile industry was producing at
higher levels than in 1946, and the Chinese shipping industry had been
fully restored. These developments, unfortunately, were more than
counterbalanced by the spread of civil strife, the continuing and
widespread disruption of inland transportation, and the progressive
reduction in the volume of domestic trade.

At this stage, as at every point in the gradual deterioration of the
Chinese economy, the downhill movement could have been halted only
by vigorous action on the part of the Chinese Government. Civil strife
by this time had become an irrevocable commitment. To wage it effec-
tively, there was needed a drastic overhaul of the Government’s eco-
nomic mechanism. Critically needed were controls over the expendi-
ture of funds by the military, a drive to tap noninflationary sources
of revenue, moves to end the waste of assets flowing in from earlier
foreign aid programs, and, above all, the development of a national
economic program geared to the requirements of large-scale military
operations.

Action in these directions obviously was uniquely a responsibility of
the Chinese Government. At the same time, it was recognized by the
Department of State that, even if all practicable steps were undertaken
by the National Government, there would be an interim period before
significant results could be expected. This deteriorating economic
situation was a vital significant part of the over-all picture which led
Secretary Marshall to recommend in J uly to President Truman that
a comprehensive survey be made by General Wedemeyer. 2

2 See pp. 255 ff.

THE PROGRAM OF AMERICAN ECONOMIC AID 371

II. PREPARATION IN THE UNITED STATES OF
THE CHINA AID PROGRAM

INTRODUCTION

For some months in mid-1947 the Department of State had been
working with the National Advisory Council on International Mone-
tary and Financial Problems in making studies of China’s balance of
payments position for possible use in connection with an aid program
for China. By September 1947 it had become apparent that the
foreign exchange assets of the Chinese Government would by early
1948 have been reduced to a point at which they would be insufficient
to finance a flow of imports essential to continuation of a minimum
level of economic activity and civil order in the coastal cities.
This observation was based on the belief that the foreign exchange
resources which would then be available to the Chinese Govern-
ment (approximately 234 million dollars in gold and United States
dollars on January 1, 1948, as reported by the Chinese Govern-
ment) represented the minimum amount required for purchase of
military imports and for maintenance of working balances. It was
estimated conservatively that private Chinese gold, silver and other
foreign exchange assets had increased to at least 500 million dollars,
but mobilization of such assets in support of China’s foreign exchange
position appeared unlikely.

SECRETARY MARSHALL’S RECOMMENDATIONS TO CONGRESS

In consideration of China’s need for funds to substitute for the
Chinese Government’s rapidly diminishing foreign exchange assets, the
Department of State in October 1947 undertook the formulation of an
economic assistance program for China to be presented to the Congress
during the early part of its 1948 session. This undertaking was not
based upon the premise that additional foreign aid would or could
solve China’s economic problems. Rather, it reflected the view that it
was necessary to assist the Chinese Government so that that Govern-
ment might be provided with an additional opportunity to initiate
measures directed toward a fundamental improvement of its position.
On November 10, in a statement before a joint session of the Senate
Committee on Foreign Relations and the House Committee on Foreign
Affairs, Secretary of State Marshall announced the intention of the
Department to present to Congress a program of aid for China :

“The situation in China continues to cause us deep concern. The
civil war has spread and increased in intensity. The Chinese Com-
munists by force of arms seek control of wide areas of China.

372

U. S. RELATIONS WITH CHINA

“The United States and all other world powers recognize the Na-
tional Government as the sole legal government of China. Only the
Government and people of China can solve their fundamental prob-
lems and regain for China its rightful role as a major stabilizing
influence in the Far East. Nevertheless we can be of help and, in the
light of our long and uninterrupted record of friendship and inter-
national cooperation with China, we should extend to the Government
and its people certain economic aid and assistance.”

On the following day, during hearings before the Senate Com-
mittee on Foreign Relations, Secretary Marshall, in reply to a ques-
tion regarding the funds that would be involved in a program of
aid for China, stated that it would be very difficult to give any firm
estimate at that time but that he would tentatively say that the
amount would be in the neighborhood of 25 million dollars a month
or a total of some 300 million dollars. During hearings before the
House Committee on Foreign Affairs on the next day, Secretary
Marshall said of the situation in China:

“It is very decidedly one where we have found the greatest difficulty
in trying to calculate a course where money could be appropriated
with, as I put it, a 70 percent probability of effective use in the
situation.

“Now, that is what we have been trying to develop. We could not —
and I add this to what I said earlier this morning — find through the
ordinary agencies, the Export-Import Bank, any basis for getting
ahead with certain enterprises in China which we thought would be
helpful ; so it is going to be necessary to turn to Congress for action
on its part. What we have in mind, very briefly, is in relation to
their import program from overseas outside of China, to see what
can be done toward a stay of execution in the deterioration of their
monetary situation so as to give them a chance, with reasonable action
on their part, and very energetic action on their part, to take some
measures toward restoring the financial situation.”

PREMIER CHANG CHUN’S REQUEST OF NOVEMBER 17, 1947

On November 17 General Chang Chun, the Chinese Premier, ad-
dressed the following letter to the Secretary of State :

“At this moment when you are shouldering the heavy responsibility
of formulating the initial plans for aiding Europe and China, I feel
compelled to send you this message for your personal consideration.

“For over six months I have been in charge of the Executive Yuan.
While I am in no wise in despair of the eventual outcome of the fight
which the Generalissimo and my colleagues are putting up, I must

THE PROGRAM OF AMERICAN ECONOMIC AID

373

frankly admit that both the military and economic situations are today
far more critical than at the time when I assumed office. Though the
Government forces have retaken the Shantung Peninsula, thereby de-
priving the Communists of one of their strongholds and bases of sup-
ply, the dislodged and scattering Communist units are now operating
in more and wider areas than before. This not only calls for greater
military efforts but also for fresh and urgent economic measures.
F urthermore, the Government position in Manchuria, if allowed to re-
main too long on the defensive may become out of control, politically
as well as militarily. This explains why there is such an outcry on
the part of the Chinese public to see China given both emergency as-
sistance and a long-range aid program. I am sure that in whatever
form or language this desire may be expressed, you will regard it
with understanding and sympathy. In sending these words to you,
I am fully conscious of my own responsibility in helping China merit
the effort which you have so generously exerted in the past and which
you are continuing to exert now.”

To this message the Secretary replied as follows :

“Thank you for your letter of November 17, in which you give me
your views on the present situation in China. As Dr. Wang Shih-
chieh doubtless told you, we are taking steps to complete the 8^ Group
Program insofar as the equipment is still available and are making
arrangements for China to be able to purchase ammunition from
supplies in the Pacific Islands as well as from manufacturers in the
United States. 2a

“A program to provide economic and financial assistance to China
is being prepared for presentation to the Congress.

“I am confident that despite the special difficulties which you face
and the enormity of China’s needs, you will appreciate that we are
endeavoring to be of all possible help within the limits imposed by
existing conditions in China, the United States and elsewhere.

“I send you my warm personal greetings with assurance that I
will do within my power all that I can to be of assistance.”

THE CHINESE REQUEST OF NOVEMBER 21 AND 24, 1947

On November 24 the Chinese Embassy at Washington handed the
Department of State a memorandum quoting an informal aide-
memoire , requesting American aid, which had been presented to the
American Ambassador at Nanking three days before :

“1. The Chinese Government welcomes Secretary Marshall’s state-
ment that the American Government should extend economic and

The military aspects are discussed in chapter VII.

374

U. S. RELATIONS WITH CHINA

financial aid to China and that a definite proposal is under consid-
eration for early action. Such aid is indeed essential if China is to
avoid financial and economic breakdown and achieve stability.

“2. Secretary Marshall indicated tentatively that American aid
might be of the order of U. S. $300,000,000 of which U. S. $60,000,000
might be available prior to June 30, 1948, and that he hoped that
definite proposals would be ready when Congress meets next January.
The prospect of such aid is gratifying, but the most recent data show
that the financial situation has become so critical that emergency aid
is immediately needed and cannot wait until April of next year.
These data were informally supplied to the American Government
through its Nanking Embassy on November 18. The Chinese Gov-
ernment therefore earnestly hopes that, pending the working out of a
comprehensive program as mentioned below, the American Govern-
ment may find it possible to provide by action of Congress interim
emergency aid to cover the deficit in China’s international balance of
payments at the rate of at least U. S. $25,000,000 monthly beginning
with January next.

“3. The Chinese Government fully recognizes that, in order to deal
with the present and prospective situation in China, a comprehensive
and carefully prepared program is needed in which external aid
and internal measures of self-help are closely integrated. The imme-
diate need is for emergency aid and action to check the inflation and
prevent a breakdown. But it is also clear that the time has come
for China to embark upon a program of fundamental internal re-
form. The program should cover currency and banking, public reve-
nues and expenditures, the armed forces, foreign trade, land policy
and rural conditions, rehabilitation of essential industries and com-
munications and administrative methods. As a result of China’s
sufferings and losses during eight years of war and the subsequent
Communist rebellion, China cannot carry out such a program unaided.
The Chinese Government, therefore, in keeping with the long history
of Chinese- American cooperation, hopes it may count upon American
material and technical assistance in carrying out this program.

“4 . For the purpose of discussing interim emergency aid and devis-
ing plans for further action on the lines indicated above, the Chinese
Government would be prepared to send to Washington a small techni-
cal mission or to receive in Nanking a similar mission from the Ameri-
can Government.

“The Chinese Government would appreciate an early reply from the
American Government concerning the views indicated above.”

The Department of State replied to the Chinese request as follows :

“The Department of State has given sympathetic consideration to

THE PROGRAM OF AMERICAN ECONOMIC AID

375

the memorandum from the Chinese Embassy dated November 24,
1947, and desires to support steps by which U.S. Government assist-
ance can be integrated with internal measures of self-help in China in
order to contribute toward an effective program for economic recovery.

“In accordance with statements made at the conference on November
13 between the Secretary of State and the Chinese Ambassador, the
Department of State is actively proceeding with formulation of defi-
nite proposals for submission to the Congress in January. It is con-
templated that there should be consultation between our two Gov-
ernments at an early date with respect to various aspects of these
proposals. If, at that time, the Chinese Government desires, the
United States would welcome a small technical mission in Washing-
ton.”

AMBASSADOR STUART’S COMMENTS

During the course of work on the China aid program, Ambassador
Stuart on November 24, 1947, sent the following pertinent general
comment to the Department :

“I have the honor to comment further on some of the spiritual or
human factors in the civil war as they are revealing themselves more
clearly in the midst of rapidly deteriorating military and fiscal trends.
The Communist organizers have a fanatical faith in their cause and
are able to inspire their workers and to a large extent their troops and
the local population with belief in its rightness, practical benefits and
ultimate triumph. As against this the Government employees are
becoming ever more dispirited, defeatist, and consequently listless or
unscrupulously self-seeking. This of course still further alienates the
liberal elements who ought to be the Government’s chief reliance. Even
the higher officials are beginning to lose hope. The effect on military
morale is disastrous. In this drift toward catastrophe they clutch
at American aid as at least postponing the inevitable. This is all
that such monetary aid can do unless there is also among the Kuomin-
tang leaders a new sense of dominating purpose, of sacred mission,
of national salvation, expressing itself in challenging slogans, arous-
ing them to fresh enthusiasms, leading them to forget their personal
fears, ambitions and jealousies in the larger, more absorbingly worth-
while cause. It seems to me that this idea can be urged upon them
under two emphases.

“(1) Freedom,. There can be absolutely no freedom of thought or
action under Communist rule. The contentment that comes from a
measure of economic security is conditioned on mute acceptance of
party dictation. The zeal is generated by what is in large measure
false and malicious indoctrination. If the Kuomintang could appreci-

376

U. S. RELATIONS WITH CHINA

ate the propagandist value of exposing this and go to the opposite
extreme in guaranteeing freedom of speech, publication and assembly,
at whatever seeming risk of subversive activities, it would win the
loyalty of the intellectuals as nothing else could. The really harmful
agitation of Communist agents in newspaper offices, schools or even
in Government bureaus, could be safely left to the constructive ele-
ments in each unit concerned. An aggressive ideological warfare over
this issue by the Kuomintang might be made tremendously effective.
But the Government would have to take an adventurous leap and cease
to rely upon its secret service and other suppressive agencies.

“(2) The People’s Livelihood . The third of the famous Three
Principles is being constantly honored in speeches and published
articles. The Communists have gone a long way toward its realiza-
tion but the Government shows up lamentably in comparison. True,
it has had incessant foreign and domestic conflicts, but making all
allowance for its difficulties the record to date has been extremely dis-
creditable. If, however, all who do not want China to be communized
could be enlisted in a movement to support the Government in effect-
ing better local administration, there might well be a resurgent revolu-
tionary movement that would attack at once graft and the inefficiency
among Government officials and the wantonly destructive policy of
the Communists. Both could alike be .described as the present form
of treasonable or unpatriotic activity, to be resisted and eliminated as
they would a foreign foe by all who love their country.

“American aid could be based on the desire to help the populace in
Government territory to have the twin benefits of the freedom essential
to democracy and the economic welfare which is the only protection
against Communist penetration. If conditioned upon hearty Gov-
ernment determination to achieve these two objectives for its people,
it would first of all supply the new hope without which the leaders
could scarcely recover from their depression of spirit and would give
us the strongest leverage in furnishing the desperately needed aid as
at each stage there is evidence of progress or in stopping it whenever
the forces of reaction or of corruption assert themselves*. . . .”

“SOME FUNDAMENTAL CONSIDERATIONS ON AMERICAN AID TO
CHINA”

On December 22, 1947 the Chinese Government handed Ambassador
Stuart the following memorandum entitled “Some Fundamental Con-
siderations on American Aid to China” :

“1. The American plan for aid to China should be a long-range
four-year project, the purpose of which would be to assist China to
achieve political and economic stability, including currency reform.

THE PROGRAM OF AMERICAN ECONOMIC AID

377

To attain this object, the funds for relief and rehabilitation to be
obtained from the United States would require U.S. $500,000,000 for
the first year, the same amount for the second year, U.S. $300,000,000
for the third year, and U.S. $200,000,000 for the fourth year, totaling
one and one-half billion U.S. dollars.

“2. With regard to the relief fund obtained under the plan, the
Chinese Government should appropriate a fund in Chinese currency,
equivalent to the value of relief commodities supplied by the United
States. This fund should be put to such uses as to benefit production
and to curb inflation. There should be consultation and agreement
between China and the United States in mapping out schemes for
spending of this fund ; and the American Government should receive
full information concerning its actual disbursement.

“3. China will, on her accord, employ experienced American per-
sonnel to assist her in the planning for financial, monetary, and other
administrative reforms. She will likewise employ American techni-
cal experts to participate in the execution of certain construction
undertakings. The Chinese Government itself will express the afore-
said intention to the American Government at an appropriate moment,
with the request that the latter will assist in the selection of such per-
sonnel. The employment of these personnel will not, however, be
made an international legal obligation of the Chinese Government in
order to avert infringement on China’s sovereignty and administrative
integrity.

“4. The American aid to China plan shall contain no political con-
dition other than what may be stipulated in the aid plan for Europe.
On the other hand, terms which will be stipulated in the aid plan for
Europe may apply, wherever practicable, to China.

“5. As regards the supply of military equipment and ammunition,
China should be allowed to purchase in the form of loans the surplus
and other military material from the American Government. The
total of such loans is tentatively estimated at U.S. $100,000,000 for
the year 1948. Prior to the submission of lists for such purchases,
the Chinese Government will consult the American Military Advisory
Group in China.”

WASHINGTON DISCUSSIONS WITH CHINESE REPRESENTATIVES

During the last quarter of 1947, concurrent with the preparation of
a China aid program, a number of conferences were held between offi-
cers of the Department of State and two representatives of the
Chinese Government who had come to Washington to offer technical
assistance in the drafting of the program: Dr. Arthur Young, an
American who for twenty-odd years had been an adviser to the Chi-

378

U. S. RELATIONS WITH CHINA

nese Ministry of Finance, and Dr. Kan Lee, a special representative
of the Ministry of Foreign Affairs. In discussing with them its plans
for United States assistance to China, the Department stressed the
great importance it attached to the execution by the Chinese Govern-
ment of “rough and ready” measures of financial, economic and admin-
istrative reform. It was recommended to Young and Lee that
they urge upon the Chinese Government the immediate preparation
of such measures with a view to their prompt application, both prior
to and concurrent with the anticipated extension of American aid, in
order that the effectiveness of the aid might be maximized.

In January 1948 the Chinese Government, pursuant to the invitation
of the Department of State, despatched a small technical mission to
Washington. This mission, headed by Pei Tsu-yi, former Governor
of the Central Bank of China, met frequently with representatives
of the Department of State and other agencies concerned with formu-
lation of the China aid program. The mission submitted for review
with United States Government representatives a presentation of
Chinese economic difficulties and remedial measures that might be
instituted by the Chinese Government.

PREMIER CHANG CHUN’S STATEMENT OF JANUARY 28, 1948

On January 28, 1948, the Chinese Premier, General Chang Chun,
issued a widely publicized statement expressing the Chinese Govern-
ment’s determination to undertake sweeping reforms in administra-
tive, financial, economic and military fields. The statement read
as follows :

“As a result of her suffering and losses during more than 8 years
of war and the subsequent Communist rebellion, China is now facing
unprecedented economic difficulties. In order to overcome these
difficulties, the Chinese Government, in the light of the long history
of Chinese-American friendship, has requested economic and tech-
nical assistance from the United States. It was with gratification
that the Chinese Government noted the inclusion of China in the
interim-aid bill and the announced intention of the United States
Government to take early action during the present session of the
Congress to provide substantial aid for China. The Chinese Govern-
ment fully recognizes that in order to secure the maximum benefit
from external aid an adequate and practicable program of domestic
measures of self-help is needed. This program should at the begin-
ning lay stress on financial and economic measures of immediate im-
portance which will be followed or accompanied by certain other
reforms in the fields of general administration and military
reorganization.

THE PROGRAM OF AMERICAN ECONOMIC AID 379

The main financial and economic reform measures which the Chi-
nese Government intends to undertake are :

“(1) Control and readjustment of Government expenditures both
in Chinese national currency and foreign currencies so as to realize
all practicable economies.

“ (2) Improvement of the national, provincial and local tax systems
and the administration thereof with the dual object of increasing the
yield and placing the tax burden upon economic groups that are best
able to pay.

“(3) With a view to insuring greater efficiency in the performance
of their duties, the treatment of civil servants as well as officers
and men will be gradually raised. Simultaneously, a program will
be enforced for the gradual reduction of Government personnel.

“(4) Strengthening and extension of control over the supply of
essential commodities of daily necessity with a view to checking specu-
lation and the abnormal rise of prices.

“(5) In order to insure the maximum effectiveness of external aid,
every effort will be made toward laying the basis for a more stable
monetary system.

“(6) Banking and credit systems to be reformed through the cen-
tralization of control in the Central Bank of China and the mainte-
nance of a counter-inflationary policy.

“(7) Promotion of exports through removal of obstacles to export
movements.

“(8) Improvement of import control; but as soon as conditions
permit, the emergency control measures shall be modified.

“(9) improvement of agricultural production and rural conditions
and land reforms through the adoption of such recommendations of
the China-United States Agricultural Mission as are suitable for
early introduction.

“ (10) Rehabilitation of communications and essential industries
as far as conditions permit in order to increase production and reduce
dependence upon abnormal imports.”

PRESENTATION OF THE CHINA AID PROGRAM TO CONGRESS

Following a period of detailed planning by the Department of State
in consultation with other departments concerned, and final review by
the National Advisory Council, a program of economic aid for China
was submitted to the Congress by the President on February 18, 1948.
The presentation of the program was accompanied by a special mes-
sage from the President, and the Secretary of State testified on
February 20 before the House Committee on Foreign Affairs in sup-
port of the program. 3 At the same time, the Ambassador issued a pub-

* See annex 175 (a) and (b).

380

U. S. RELATIONS WITH CHINA

lie statement in China designed to explain the purpose of the proposed
program of American assistance. 3 * 1 The program as presented called
for an appropriation of 570 million dollars to be available for expendi-
ture until June 30, 1949, a period of approximately 15 months con-
sidering the time that would be required for Congressional action. It
was envisaged that 510 million dollars of the total would be used to
finance minimum imports of essential civilian types of commodities
chiefly foodstuffs and industrial materials, while 60 million dollars
would be programed for a few selected industrial and transportation
reconstruction projects to be initiated prior to June 30, 1949.

Subsequent to the public presentation of the China aid program to
Congress, the Secretary of State read the following statement to
the Committees on Foreign Affairs and Foreign Relations in execu-
tive session :

I am assuming your familiarity with the general outline of the Chinese pro-
gram which I presented at the opening hearing on this subject. There is a great
deal that directly bears on the problem which is not in the public interest of this
country, and particularly of the Chinese Government, to state for the open record.
A public statement of many of the factors which have led to the failures of the
Chinese Government in both the military and economic field, however accurate,
would be destructive of morale to that Government and its army. Moreover, it
would actually be helpful, even stimulating, to the morale of the Communist
Party, and especially the Communist army. Therefore, it has been very difficult
to make a frank public statement of the case.

Considering the military aspects of the problem it was clear from V-J Day
in 1945 that the Chinese Government was confronted by a military situation which
made it, in the opinion of virtually every American authority, impossible to con-
quer the Communist armies by force. Geographically, the odds were too heavy
against the Government — thousands of miles of communications bordered by
mountains affording easy retreats for guerrilla forces, numerous vulnerable river
crossings and tunnels easily subject to destruction ; the strategical and tactical
characteristics of guerrilla warfare permitting a concentration of guerrilla forces
at a desired point where the Government was weakest; and the governmental
military necessity of covering all points, therefore all weakly and thus vulnerable
to surprise attack.

There was constant insistence on the part of the Generalissimo and his high
military and political group that the only way the issue could be settled was by
force. I had endeavored to persuade them time after time that it was not within
their capability to settle the matter by force. The odds were too heavy against
them. Furthermore, there was conspicuous ineptitude and widespread corrup-
tion among the higher leaders. The consequent low morale of the Chinese Govern-
ment armies has been a factor of great importance to the military situation.

We have had many proposals for this Government to support the Chinese mili-
tary program. That is easy to say, but extraordinarily difficult and dangerous
to do. It involves obligations and responsibilities on the part of this Government
which I am convinced the American people would never knowingly accept. We
cannot escape the fact that the deliberate entry of this country into the armed

8a See annex 176.

THE PROGRAM OF AMERICAN ECONOMIC AID

381

effort in China involves possible consequences in which the financial cost, though
tremendous, would be insignificant when compared to the other liabilities inevi-
tably involved.

So far, I have been discussing the Government military forces. On the other
side, the Communist forces have brought about terrible destruction and virtually
wrecked the economy of China. This was their announced purpose — to force an
economic collapse. The development of the situation was predicted by me to the
Chinese Government frankly and forcibly many times in the summer and fall
of 1946. The Government failures have been even worse than I anticipated.

We have furnished important aid to China since V-J Day. Military aid in-
cluded the transportation by U.S. facilities of Chinese Government troops from
points in west China to the major cities of central and north China and from
coastal points to the port of entry into Manchuria for the reoccupation of Japa-
nese-held areas. At the end of the war the U.S. had largely equipped and par-
tially trained 39 Chinese divisions. Additional equipment was transferred to
the Chinese to complete these divisions and to replace worn-out equipment.
Military lend-lease aid to the Chinese Government amounted to more than $700
million. The Chinese Government obtained the arms and equipment of the sur-
rendering Japanese armies in China proper (below the Great Wall) and Formosa,
a total of approximately 1,235,000 men. The Chinese Communists obtained large
quantities of Japanese arms in Manchuria, through direct or indirect Soviet
connivance; the number of surrendering Japanese troops in Manchuria is esti-
mated at 700,000.

The National Government has had its own arsenals, which, while small by
U.S. standards, did represent an effective addition to its military potential.
Japanese-armed Chinese puppet troops with their equipment were taken over by
the Chinese Government in large numbers — estimated as 780,000.

Under Public Law 512 the U.S. has transferred to the Chinese Navy as a
gift 97 naval craft and has trained Chinese naval personnel to man these vessels.
The U. S. Military Advisory Group at Nanking has furnished advice and assistance
on a staff level to the Chinese Government in organizational and training matters
and is now participating in training of Chinese troops on a division level in
Formosa.

The U. S. Marine Corps landed about 55,000 men in north China after V-J Day.
In addition to disarming the Japanese, the Marines guarded railways and coal
mines in north China until September 1946 to ensure an adequate supply of coal
for the vital industrial areas in north and central China. At the time of their
withdrawal in the spring and summer of 1947, the Marines “abandoned” certain
military materiel, including munitions, to the Chinese Government forces. The
U. S. Army and Marine Corps were largely responsible for the removal of
approximately 3,000,000 Japanese soldiers and civilians from China.

We have been supplying munitions under surplus property arrangements and
the Chinese have made some purchases of munitions commercially. In recent
months the Chinese have concluded contracts with Oflc for most of the U. S.
military surplus suitable to Chinese needs, including ammunition, transport
planes and other military materiel. Arrangements are now being completed
to sell to the Chinese under surplus arrangements the remaining available ammu-
nition in Hawaii and in the Zone of the Pacific.

There have been long delays in completing the necessary contracts largely
because the Chinese officials concerned persisted in time-consuming maneuvers
to secure an even greater bargain than our people felt authorized to agree to.

On the civilian side, commercial vessels have been transferred to the Chinese
Government and large amounts of civilian goods valuable to the Chinese economy

382

U. S. RELATIONS WITH CHINA

were sold to the Chinese Government under surplus arrangements at prices rep-
resenting only a small fraction of their procurement cost. The Export-Import
Bank has extended credits to the Chinese for reconstruction purposes and the
import of cotton. The U.S. contributed a major share of the Unrra program
for China. Authorized U.S. aid from V-J Day until the present date, exclusive
of surplus property sales, totals $1,432,000,000, at least half of which was
military assistance.

The Chinese Government has received aid from other foreign sources. The
non-U.S. share of the Unrra program and certain foreign credits together
total approximately $250 million. The Chinese Government obtained the large
Japanese industrial and other holdings in China having a roughly estimated
value in 1945 dollars of $3,600,000,000. (This figure allows for a 50 percent
reduction of the value of Japanese holdings in Manchuria due to Soviet removals,
civil war and related damage and general under-maintenance in the post-war
period. )

All of the foregoing means, at least to me, that a great deal must be done by
the Chinese authorities themselves — and that nobody else can do it for them —
if that Government is to maintain itself against the Communist forces and
agrarian policies. It also means that our Government must be exceedingly
careful that it does not become committed to a policy involving the absorption
of its resources to an unpredictable extent once the obligations are assumed
of a direct responsibility for the conduct of civil war in China or for the Chinese
economy, or both.

There is another point that I wish to mention in consideration of this matter.
There is a tendency to feel that wherever the Communist influence is brought to
bear, we should immediately meet it, head on as it were. I think this would be
a most unwise procedure for the reason that we would be, in effect, handing
over the initiative to the Communists. They could, therefore, spread our
influence out so thin that it could be of no particular effectiveness at any one
point.

We must be prepared to face the possibility that the present Chinese Govern-
ment may not be successful in maintaining itself against the Communist forces
or other opposition that may arise in China. Yet, from the foregoing, it can
only be concluded that the present Government evidently cannot reduce the
Chinese Communists to a completely negligible factor in China. To achieve that
objective in the immediate future it would be necessary for the United States
to underwrite the Chinese Government’s military effort, on a wide and probably
constantly increasing scale, as well as the Chinese economy. The U.S. would
have to be prepared virtually to take over the Chinese Government and admin-
ister its economic, military and governmental affairs.

Strong Chinese sensibilities regarding infringement of China’s sovereignty, the
intense feeling of nationalism among all Chinese and the unavailability of
qualified American personnel in the large numbers required argue strongly
against attempting any such solution. It would be impossible to estimate the
final cost of a course of action of this magnitude. It certainly would be a
continuing operation for a long time to come. It would involve this Government
in a continuing commitment from which it would practically be impossible to
withdraw, and it would very probably involve grave consequences to this nation
by making of China an arena of international conflict. An attempt to underwrite
the Chinese economy and the Chinese Government’s military effort represents a
burden on the U.S. economy and a military responsibility which I cannot
recomend as a course of action for this Government.

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383

On the other hand we in the Executive Branch of the Government have an
intense desire to help China. As a matter of fact, I have struggled and puzzled
over the situation continuously since my return. Our trouble has been to find
a course which we could reasonably justify before Congress on other than
emotional grounds. It has been a long struggle to concoct an economic program
and clear it through the various Government agencies — the National Advisory
Council, and, of course, the Budget Bureau, where they properly have to be
very factual.

We are already committed by past actions and by popular sentiment among
our people to continue to do what we can to alleviate suffering in China and to
give the Chinese Government and people the possibility of working out China’s
problems in their own way. It would be against U.S. interests to demonstrate
a complete lack of confidence in the Chinese Government and to add to its difa-
culties by abruptly rejecting its request for assistance. The psychological effect
on morale in China would be seriously harmful.

We hope that the program we are presenting to Congress will assist in arrest-
ing the accelerating trend of economic deterioration to provide the Chinese Gov-
ernment with a further opportunity to lay the groundwork for stabilizing the
situation. In these circumstances, I consider that this program of economic
assistance, proposed with full recognition of all the unfavorable factors in the
situation, is warranted by American interests.

The problem of U.S. aid to China must be considered in the light not only of
the foregoing but also in its relation to other important factors.

China does not itself possess the raw material and industrial resources which
would enable it to become a first-class military power within the foreseeable
future. The country is at present in the midst of a social and political revolu-
tion. Until this revolution is completed — and it will take a long time — there
is no prospect that sufficient stability and order can be established to permit
China’s early development into a strong state. Furthermore, on the side of
American interests, we cannot afford, economically or militarily, to take over
the continued failures of the present Chinese Government to the dissipation of
our strength in more vital regions where we now have a reasonable opportunity
of successfully meeting or thwarting the Communist threat, that is, in the vital
industrial area of Western Europe with its traditions of free institutions.

Present developments make it unlikely, as previously indicated, that any
amount of U.S. military or economic aid could make the present Chinese Govern-
ment capable of reestablishing and then maintaining its control throughout all
of China.

The issues in China are thoroughly confused. The Chinese Communists have
succeeded to a considerable extent in identifying their movement with the popular
demand for change in present conditions. On the other hand, there have been
no indications that the present Chinese Government, with its traditions and
methods, could satisfy this popular demand or create conditions which would
satisfy the mass of Chinese people and prevent further violence and civil
disobedience.

I know from my own personal experience that large numbers of young
Chinese, college graduates, have gone over to the Communist Party, not because
they favored the ideology of the Party but because of their complete disgust with
the corruption among the officials of the Chinese Government. In the opinion
of these young men, the Communist Party was trying to do something for the
common people, and no one accuses the Communist leaders or officials of per-
sonal graft. For this reason the Communist military forces are not all of the

384

U. S. RELATIONS WITH CHINA

same way of thinking. I have recently been told by our representatives in
Manchuria and other places that it is quite apparent that considerable groups
are within the ranks of the Communist army because they are opposed to the
iniquities of the political party in power, the Kuomintang, and its failure to do
anything constructive for the common people and not because of any belief in
Communist ideology.

At present, the Chinese Government is not only weak but is lacking in self-
discipline and inspiration. There is little evidence that these conditions can be
basically corrected by foreign aid. In these circumstances, any large-scale U.S.
effort to assist the Chinese Government to oppose the Communists would most
probably degenerate into a direct U.S. undertaking and responsibility, involving
the commitment of sizeable forces and resources over an indefinite period. Such
a dissipation of U.S. resources would inevitably play into the hands of the Rus-
sians, or would provoke a reaction which could possibly, even probably, lead to
another Spanish type of revolution or general hostilities.

In these circumstances, the costs of an all-out effort to see Communist forces
resisted and destroyed in China would, as indicated above, be impossible to
estimate; but the magnitude of the task and the probable costs thereof would
clearly be out of all proportion to the results to be obtained.

It was not intended that American aid should be equated with
China’s total foreign exchange deficit. In the first place, no reliable
estimate of China’s total foreign exchange expenditures over the next
15 months was available. Such an estimate would have had to in-
clude expenditures for military purposes as well as for civilian im-
ports, but the Chinese Government had spent very little since the
war for imports of military equipment and supplies and had not
formulated a program of military procurement. It was believed
that necessary military expenditures could be financed in the dis-
cretion of the Chinese Government out of its own foreign exchange
reserves and due allowance was made for this contingency. Further-
more, China’s receipts of foreign exchange from exports and remit-
tances were so erratic that it was extremely difficult to project the
capacity of the Chinese Government to pay for its essential civilian
imports out of current earnings.

There were, however, certain available criteria which were applied
in formulating the program. The capacities of China’s cotton mills
were known and their needs for raw cotton could be estimated, as could
the petroleum requirements of selected industries and transportation
facilities. Thus, a floor and a ceiling as well were available for two
major categories of China’s import requirements. Experience gained
in previous aid programs had demonstrated that China’s capacity
for effective internal distribution of other commodities, such as food
and fertilizer, was extremely limited due to high costs generated by
inflation and to the cumbersome and inefficient administrative struc-
ture of many Chinese organizations. It was decided, therefore, to
program aid imports of commodities other than petroleum and cotton

THE PROGRAM OF AMERICAN ECONOMIC AID 385

on the basis of past imports as modified by Chinese Government esti-
mates of minimum import requirements.

It was recognized that the comprehensive reconstruction of Chinese
industry and transportation would require foreign capital of great
magnitude. It was evident, however, that a large scale reconstruction
program could not be carried out successfully amidst the existing dis-
organization and hyperinflation. A high proportion of the cost of
each reconstruction project would have to be met in Chinese currency to
cover domestic expenditures for labor and materials. Thus, the infla-
tionary consequences of an ambitious reconstruction program might
well have been so extreme as to have crippled the program itself and
substantially increased the rate of economic deterioration in the econ-
omy as a whole. It was decided therefore to concentrate on a few of
the most serious obstacles to permanent improvement of the Chinese
economic situation. These obstacles were the shortage of electric
power, coal and fertilizer, and the serious disrepair existing in China’s
railroad facilities.

Other considerations, such as the availability of specific commodi-
ties and competing demands upon American resources, were of course
brought to bear on the exact amount of aid requested. The total
amount programed, however, was estimated as approximating the
maximum of commodities that China could absorb effectively within
a limited time period and, on the basis of conservative estimates of
prospective exports and remittances, this amount was believed to be
beyond China’s means to finance out of current earnings. Such im-
provement as China could have effected in exports and remittances
would have increased the amount of foreign exchange available to the
Chinese Government for additional imports or for accumulation of
reserves.

The Secretary of State had stated in his initial testimony on the aid
program before the House Foreign Affairs Committee that “provision
of a currency stabilization fund would, in the opinion of our monetary
experts, require large sums which would be largely dissipated under
the present conditions of war financing and civil disruption.” Never-
theless, in the course of Committee hearings, interest was evidenced in
the possibility of lending stability to the Chinese currency through a
United States loan or grant of silver for monetary circulation within
China. Pursuant to a request from the House Foreign Affairs Com-
mittee, the Department of State in late March submitted to Chairman
Eaton of that Committee a statement analyzing the silver proposal with
reference to China. The statement had been prepared in collaboration
with the Treasury Department and the Federal Reserve Board

U. S. RELATIONS WITH CHINA

386

and was entitled “Possible Use of Silver for Monetary Stabilization in
China in Connection with China Aid Program.” 4 A copy of the
statement also was submitted to the Senate Committee on Foreign
Relations. The analysis led to negative conclusions which were stated
briefly in the opening summary paragraph of the statement as follows :
“The China Aid Program does not provide for the use of silver to
bring about monetary stability in China. It does not do so for three
main reasons: one , because conditions in China do not now furnish a
basis for any lasting currency stabilization ; two , because even if basic
conditions now favored stabilization of the currency and price level
it would not be practical to restore the silver standard in China; and
three, because the introduction of silver as an emergency measure
at this time would involve such technical difficulties as to make it a
costly and uncertain venture.”

It was clear that the proposed aid program could not, of itself,
bring about a decided change for the better in the rapidly deteriorat-
ing Chinese economic picture. Other factors remaining equal, it was
believed that the proposed aid would serve to prevent an acceleration
of the inflation that was certainly in prospect in the absence of aid.
The expendable commodities would help to prevent starvation in
the coastal cities, maintain employment in the cotton mills, and keep
other industry and transportation from breaking down, while the
capital goods would make possible some permanent improvement in
important sectors of the economy. Moreover, receipts from the sale
of these goods within China by the Chinese Government would to some
extent merely serve to maintain the level of income that the Govern-
ment had been receiving. There would still remain a very large
budgetary deficit that the Chinese Government had been meeting by
the issuance of currency. Nor would the extension of American
material aid affect the other major problems of China’s civil and
military administration that represented the basic deterrents to effec-
tive organization of the economy and prosecution of the Government s
military program. 43

Thus, it was apparent at the time this aid program was presented
to the Congress that no amount of outside material assistance or
advice could substitute for the far-reaching steps that would have to
be taken by the Chinese Government itself if it were to survive. This
was widely recognized by many Chinese individuals and officials of
the Chinese Government including the then Premier Chang Chun,
who had, as stated above, issued on January 28, 1948, a statement
of intention to undertake measures of domestic reform. This state-

1 See annex 177.

“See annex 178 (a) and (b) .*

THE PROGRAM OF AMERICAN ECONOMIC AID

387

ment by the Chinese Government lent some encouragement to the
Administration and the Congress in support of the hope that a pro-
gram of United States aid might be augmented sufficiently by the
Chinese themselves so that a basis could be laid for economic im-
provement and political stability.

These circumstances dictated that an initial United States aid pro-
gram for China should be limited approximately to the period of a
year rather than authorized for five years as had been recommended
by General Wedemeyer, or for four years as was requested by the
Chinese Government. The proposed China aid program differed
sharply in this respect from the European Recovery Program which
was considered simultaneously by the Congress. In the case of both
Western Europe and China, the effectiveness of United States aid de-
pended primarily upon the performance of the Government through
which aid would be extended. But in the European situation, eco-
nomic and political conditions, and the administrative structure of
the governments concerned, made it possible to develop a long-range
economic reconstruction plan, whereas in China such planning was
clearly impossible, and the capacity of the Chinese Government to
carry out sweeping measures necessary to permanent economic im-
provement was a highly uncertain factor. Authorization of a long-
range aid program would have represented a commitment by the
United States Government from which it would have been extremely
difficult, if not impossible, to withdraw, regardless of future develop-
ments. The China aid program was regarded by the Department of
State as a measure which might become either the first stage of larger
and more constructive endeavors or the conclusion of large-scale
United States aid to the Chinese Government. These alternative
possibilities, and the fact that their determination would depend
heavily on actions of the Chinese Government, were pointed out by
the Secretary in testimony before Congress and subsequently by the
United States Embassy to officials of the Chinese Government.

III. THE CHINA AID ACT OF 1948

The President’s request for authorization and appropriation of 570
million dollars for economic aid to China was considered during March
by the Senate Committee on Foreign Relations and the House Com-
mittee on Foreign Affairs. The House of Representatives was the
first to pass legislation for aid to China, incorporated in an omni-
bus bill dealing with foreign aid on a world-wide basis. The
House bill authorized two separate appropriations for China totaling
570 million dollars for a 15-month period. One authorization pro-

388

U. S. RELATIONS WITH CHINA

vided 420 million dollars for economic aid and the other amended the
legislation under which Greece received aid to authorize 150 million
dollars for military assistance to China to be supervised by an Ameri-
can military mission on the same basis as that which underlay pro-
vision of United States military aid in Greece. This would have
required assumption of responsibility by the United States Govern-
ment for programing, procurement and delivery of military supplies
for the Chinese Government and for detailed supervision of their
use in China, including operational advice to Chinese combat forces
in the field.

The Senate dealt with aid to China in an individual bill which
authorized the appropriation of 463 million dollars to be available
for obligation for the period of one year. Of this total, 363 million
dollars was to be provided as economic aid while the balance, 100
million dollars, was to be set aside for grants on such terms as the
President might decide. The legislative history of this bill made
it clear that this special fund was to be disbursed at the discretion of
the Chinese Government, although it was assumed that the Chinese
Government probably would elect to use it largely for procurement
of military supplies. The Senate bill, however, made no reference
to military aid in providing for this special grant and the report of
the Senate Foreign Relations Committee stated:

“In view of the Chinese requirement for military supplies, it may
be assumed that the Chinese Government, on its own option and
responsibility, would seek this grant for such supplies. With intelli-
gent planning, and careful conservation and efficient utilization the
Chinese Government could achieve much with this sum. . . . [It]

will be extended in the form of grants to be used by the Chinese
Government without any of the conditions and controls which will
prevail with respect to the expenditure of the remaining $363,000,000.
Presumably, therefore, this amount can be used for the procurement
of military supplies and equipment if the National Government so
desires. The committee agreed, however, that the broad language
of section 3 (b) of the present bill should not be interpreted to
include the use of any of the armed forces of the United States for
combat duties in China.”

Thus, the Senate and House bills differed sharply in the degree
to which they would place responsibility on the United States Gov-
ernment for supervision of Chinese Government military planning
and operations. This difference was reconciled by the House and
Senate conferees in favor of the Senate bill. The conference bill,
which was passed by the Congress on April 2, 1948, followed sub-
stantially the form of the Senate bill but changed the amounts

THE PROGRAM OF AMERICAN ECONOMIC AID

389

authorized for one year to 338 million dollars for economic aid and
125 million dollars for special grants to be used in the discretion
of the Chinese Government. The conference bill became the China
Aid Act of 1948 * 5 and was incorporated as Title IV of Public Law 472
entitled the Foreign Assistance Act of 1948. 6

Congress subsequently appropriated the full 125 million dollars
authorized for special grants to the Chinese Government. However,
despite testimony by the Department of State that the full amount of
the President’s original request for 570 million dollars was needed
for economic aid, the Congress appropriated only 275 million dollars
for this purpose. The 570 million dollar program for 15 months
presented by the President, if scaled down proportionately to a 12-
month period, would have come to approximately 463 million dollars.
Thus, the appropriation represented an actual reduction of 188 million
dollars below the amount requested for economic aid.

The preamble to the China Aid Act of 1948 declared it to be the
policy of the people of the United States to encourage the Republic
of China and its people to exert sustained common efforts to achieve
internal peace and economic stability, to maintain the genuine inde-
pendence and administrative integrity of China and to sustain and
strengthen principles of individual liberty and free institutions in
China through a program of assistance based on self-help and co-
operation. It further declared it to be the policy of the United States
that assistance provided under the act should at all times be dependent
upon Chinese cooperation in furthering the programs. Finally, the
preamble emphasized that any assistance furnished under the act

“. . . shall not be construed as an express or implied assumption by
the United States of any responsibility for policies, acts, or under-
takings of the Republic of China or for conditions which may prevail
in China at any time.”

Section 405 of the act provided that

• • an agreement shall be entered into between China and the
Lnited States containing those undertakings by China which the Sec-
retary of State, after consultation with the Administrator of Eco-
nomic Cooperation, may deem necessary to carry out the purposes of
this title and to improve commercial relations with China”.

In additi on to the supply of expendable commodities and provision

See annex 179. It received the President’s approval on Apr. 3, 1948.

6 Title I (the Economic Cooperation Act of 1948) of this omnibus act authorized
the European Recovery Program, and titles II and III dealt with the Interna-
tional Children’s Emergency Fund and the Greek-Turkey aid programs
respectively.

TJ. S. RELATIONS WITH CHINA

390

of capital goods for reconstruction projects envisaged in the program
presented by the President, the Congress in section 407 of the act pro-
vided for a program of assistance for reconstruction in rural areas of
China. This section authorized the. Secretary of State to conclude an
agreement with China establishing a Joint Commission on Rural Re-
construction in China to be composed of two Americans and three
Chinese. It was apparent that such a program would have to be
largely educational in character and, therefore, that the funds required
for its operation would, for the most part, be Chinese currency. Con-
sequently, this section provided that the rural reconstruction program
might be financed by “an amount equal to not more than 10 per
centum of the funds made available” for economic aid to China, and
that “such amount may be in U.S. dollars, proceeds in Chinese cur-
rency from the sale of commodities made available to China” as eco-
nomic aid, or both.

IV. IMPLEMENTATION OF THE CHINA
ECONOMIC AID PROGRAM

INITIATION OF THE PROGRAM

By virtue of an advance by the Reconstruction Finance Corporation,
the Economic Cooperation Administration was able to launch the
authorized program of commodity assistance to China before Congress
acted on its appropriation. The China Aid Act of 1948 provided for
an Rfc advance of 50 million dollars, and the President decided that
this amount should be divided between economic aid and the program
of special grants to the Chinese Government in the same proportion
that the total authorized appropriations for these two purposes bore
to each other. Thus, 36.5 million dollars of the 50 million dollars was
allocated by the Bureau of the Budget to Eca, and 13.5 million dol-
lars was allocated to the Treasury for disbursement upon request by
the Chinese Government. Eca extended assistance initially m ac-
cordance with the terms of notes exchanged on April 30, 1948, between
the Secretary of State and the Chinese Ambassador in Washington.
These notes provided that, pending the negotiation of a bilateral
economic aid agreement, the extension of American aid would be gov-
erned by the agreement of October 27. 1947, negotiated in connection
with the United States Foreign Relief Program, subject to such

modifications as might be agreed by the two governments. .

Negotiations regarding the terms of a bilateral economic aid agree-
ment between China and the United States were begun in May of
1948 between the American Embassy in Nanking and the Chinese
Ministry of Foreign Affairs. The Act specified that aid should be

THE PROGRAM OF AMERICAN ECONOMIC AID

391

provided to China “. . . under the applicable provisions of the Eco-
nomic Cooperation Act of 1948 (Title I) which are consistent with
the purposes” of the China Aid Act (Title IV). Thus, it was neces-
sary that the Department of State negotiate, after consultation with
Eca, an agreement with China which adhered as closely as possible
to the terms specified by Title I for aid to countries participating
in the Organization for European Economic Cooperation. At the
same time, due allowance had to be made for certain aspects of
the Chinese situation that were basically different from conditions
obtaining in Western Europe. Variation was called for particularly
in regard to those sections off Title I which prescribed various under-
takings in the field of economic self-help to be required of European
governments. It would have been futile, for example, to require that
the Chinese Government, in the midst of civil strife, rampant infla-
tion and administrative disorganization, attempt to achieve objectives
in the field of industrial reconstruction and financial stabilization as
rigorous as those indicated by Title I for commitment by Western
European countries.

Negotiations were satisfactorily concluded in the first days of July
and the Agreement was signed on July 3, 1948, by Ambassador Stuart
and the Chinese Minister of Foreign Affairs, Wang Shih-chieh. 7 In
general, the Agreement followed the pattern of the bilateral agree-
ments which were negotiated simultaneously with Western European
countries. The language of certain articles was made almost iden-
tical for those undertakings specified by Title I which applied in prin-
ciple to the Chinese as well as to the European situation. Where
circumstances differed substantially, however, some standard articles
were modified considerably in the China Agreement, or unique pro-
visions were added.

UNDERTAKINGS BY THE CHINESE GOVERNMENT

The undertakings by the Chinese Government in the Agreement
which were most significant in terms of their relevance to the basic
problems confronting that Government, or in terms of their unique
character, can be summarized as follows :

1. In order to achieve the maximum improvement of economic con-
ditions through the employment of American assistance, the Chinese
Government agreed to (< 2 ) take the measures necessary to ensure effi-
cient and practical use of economic resources available to it, including
effective use of United States aid goods and appropriate use of private
Chinese assets in the United States, (b) promote the development of
industry and agriculture on a sound economic basis, ( c ) take the

7 See annex 181.

392

U. S. RELATIONS WITH CHINA

financial, monetary, budgetary and administrative measures necessary
to create more stable currency conditions, and ( d ) cooperate with
other countries to increase the international exchange of goods and
services and to reduce public and private barriers to foreign trade.

2. The Chinese Government agreed to make all practicable efforts
to improve commercial relations with other countries, with par-
ticular reference to the conditions affecting foreign trade by private
enterprises in China. This undertaking was unique to the China
Agreement and was required specifically by section 405 of the China
Aid Act. The article containing this undertaking was made fairly
general in character, partly out of deference to the sensitivities of the
Chinese Government, and also because the Chinese Government on
May 22, 1948, had put into effect the provisions of the General Agree-
ment on Tariffs and Trade, which detailed principles of foreign
commercial relations.

3. The Chinese Government agreed that all United States aid goods
should be processed and distributed according to terms and condi-
tions and prices agreed upon between the Chinese and United States
Governments. The Chinese Government also undertook to achieve
fair and equitable distribution of United States aid goods and simi-
lar commodities, in so far as possible through rationing and price
control systems in the urban centers of China. This also was an
undertaking unique to the China Agreement, but it was believed that
provisions for joint supervision over the distribution of United States
aid goods within China by the two Governments was essential to
minimize dissipation of such goods in the disorganized situation that
existed.

The commitments in the Agreement by the Chinese Government to
take action in the field of economic self-help represented major under-
takings towards large objectives. They were, however, general in
character and expressed in relative rather than absolute terms. The
American Government was fully appreciative of the enormous diffi-
culties which confronted the Chinese Government. It did not expect
perfection or near perfection in the performance of that Govern-
ment. Nevertheless, it was evident that unless the Chinese Govern-
ment and people themselves were to take effective initial steps as a
necessary basis for the progressive solution of their economic and
administrative difficulties, American aid, whether economic or mili-
tary, would accomplish little of permanent value. The China Aid
Act was designed particularly to afford the Chinese Government an
opportunity to execute desperately needed measures of self-help. It
was therefore incumbent on the American Government to make use
of its program of aid, to the maximum extent possible and appropriate,

THE PROGRAM OF AMERICAN ECONOMIC AID 393

to represent to the Chinese Government the essentiality of its under-
taking those measures of self-help indispensable to its survival.

It was recognized that the self-help undertakings expressed by the
Chinese Government in the bilateral aid agreement were so general
that they provided little guidance for concrete action and offered
considerable latitude for Chinese failure to act. General undertak-
ings to initiate basic reforms had been undertaken unilaterally by
the Chinese Government in the past with little to show for them.
What was really called for in the circumstances was the formulation
of specific measures and the early and progressive translation of such
measures into a coherent program of concrete action. As indicated
above, the Chinese Premier, Chang Chun, had voluntarily issued a
general statement in January 1948 of intention to carry through
sweeping reform measures. The prompt and practical implementa-
tion of the Premier’s statement had been urged by the United States
Government as soon as the statement was issued, but after 3 months
there was no evidence that the statement had occasioned the initiation
of first steps directed toward basic reforms. The American Govern-
ment believed that it should take the occasion of the negotiation of
the aid agreement vigorously to persuade the Chinese Government to
formulate specific measures for concrete action, and that it should
urge the Chinese Government continuously throughout the period of
the aid program to carry out such measures.

Consideration was given by the Department of State to the inclusion
of more specific Chinese commitments in the bilateral aid agreement,
or to obtain separate written commitments from the Chinese Gov-
ernment. It was decided, however, that insistence on a formaliza-
tion of detailed commitments in this manner would prove unworkable
even if attained. This decision reflected recognition of the fact that,
while it was appropriate to call for formal general commitments on
self-help by the Chinese Government in connection with extension
of a large United States' aid program, the specific implementation of
such commitments was, in a purely formal as well as in a very real
sense, the exclusive responsibility of the Chinese Government. A re-
quirement of written pledges on matters of detailed administration by
the Chinese Government as a prerequisite to United States aid would
place on the United States Government the responsibility for super-
vising the implementation of the pledges and the obligation to suspend
or to withdraw aid if the specific commitments were not met. This
would have been an undertaking by the American Government which
probably would have led to the employment of American supervisory
personnel in China in large numbers, and which unquestionably would
have been regarded in China and elsewhere as an extreme infringe-

394

U. S. RELATIONS WITH CHINA

ment of Chinese sovereignty. It would have involved the American
Government, in effect, in an attempt to force the Chinese Government
to do in its own self-interest those things which only that Government
itself was in a position to initiate and which, in the last analysis, only
the Chinese Government itself could administratively perform.

In view of the above considerations, the Department of State decided
that efforts should be intensified on an informal basis to persuade the
Chinese Government of the necessity of early concrete measures in
implementation of the general undertakings proposed for inclusion in
the aid agreement. Consequently, the Embassy in Nanking was in-
structed to hold a special series of informal discussions with Chinese
Government leaders corollary to negotiations on the aid agreement,
such discussions to be related in substance to the agreement but to be
held apart from the formal negotiations. The Department indicated
that, in such discussions, the Chinese should be pressed for oral
assurances regarding specific measures intended.

SPECIFIC ECONOMIC MEASURES RECOMMENDED TO CHINA

On May 15, 1948, the Department of State transmitted to the
Embassy at Nanking for use in corollary discussions with Chinese
Government leaders a list of the principal specific measures regarding
which it was believed the Chinese Government should initiate con-
crete steps. The list was not meant to be comprehensive, nor did it
attempt to detail the administrative steps that would be involved. It
was felt that the Embassy was in a better position to judge the more
detailed actions that would be required. In any event, the Embassy
was advised to encourage the Chinese to set forth their own proposals
for general and concrete action, reserving the Embassy’s comments
for emphasis or addition if significant points were neglected by the
Chinese. The following measures were those contained in the in-
struction from the Department of State to the Embassy : 8

1. Government Expenditures

(a) Establishment of budgetary control and standardization of
accounting, based on short-term projections, in the hands of a central
fiscal authority with power to make allocations for all expenditures
and with sufficient political strength to resist demands for unneces-
sary expenditures.

(b) Elimination of nonproductive expenditures not essential to
efficient civil administration and prosecution of the war, such as
padded army rolls, troops garrisoned in sheltered areas, Kuomintang
Party activities, and so forth.

* See annex 182.

THE PROGRAM OF AMERICAN ECONOMIC AID

395

2. Government Receipts

(a) Administrative improvements in taxation.

(&) Expansion of measures to protect tax revenue from currency
depreciation, such as the use of multiplication factors, ad valorem
taxes and taxation at source.

(c) Expeditious sale of Government assets which could be operated
more appropriately and efficiently by private enterprise.

3. Civil and Military Administration

(a) Adoption or continuation of a realistic cost of living index as a
standard for ensuring more adequate pay for civil employees and

soldiers. .

(b) Drastic and impartial weeding out of civil and military officials

guilty of gross inefficiency or corruption.

(o) Conscientious reduction of civil and military rolls to eliminate

unnecessary employees.

(d) Coordination and elimination of duplication in civil and mili-
tary agencies.

4. Distribution of Staple Commodities

Improved administration of, or extension of, distribution controls
or 'incentives to maintain and expand the flow of consumer goods
into rural areas as necessary to increase production and movement of
agricultural goods for urban consumption and export.

5. Banking and Credit

Adjustment of the banking system in order :

{a) to give the Central Bank complete control of banking and credit
policy for the purpose of checking speculation and ensuring more ade-
quate credit for essential productive economic activity ;

( b ) to establish a clearer demarcation between the functions of Gov-
ernment and private banks and to prevent favoritism to Government
banks ;

(c) to eliminate uneconomic banking operations, such as the Cen-
tral Cooperative Bank.

6. Agricultural Improvement

Implementation of recommendations of the Joint U.S.-China Agri-
cultural Mission, with special reference to enforcement of reductions
in rents and interest rates.

7. Foreign Trade and its Controls

(a) Administrative improvements in import and exchange controls
including coordination throughout China of control procedures.

396

TJ. S. RELATIONS WITH CHINA

(b) More realistic exchange rate policies.

( c ) Provision of adequate credit for production and marketing of
export goods.

(d) Improvement in quality and standardization of export goods.
8. Encouragement to Private Enterprise

(a) Clarification, by action as well as by statement, of fields open
to private enterprise without governmental intrusion.

(b) Elimination of special privilege in foreign trade and domestic
enterprise.

In addition to the measures of self-help listed above, the Department
instructed the Embassy to request that the Chinese Government per-
mit foreign flag vessels carrying American aid cargo destined for
inland water ports to discharge their cargo at such ports. It was
believed that this permission was necessary for the effective imple-
mentation of American aid to interior points of China. After lengthy
consideration, the Chinese Government indicated its willingness to
grant such permission on a case by case basis, but the effect of the
decision was not great for, by the time it was made, foreign shipping
firms had become reluctant to risk transportation up the Y angtze.

In discussing the shipping problem with Chinese officials, the Em-
bassy pointed out, inter alia , that general Chinese permission for for-
eign commercial vessels to carry international cargo on China’s major
inland waterways would clearly be to China’s economic interest; that,
while all sovereign powers enjoyed full control over national inland
waterways, a large majority of nations had for reasons of economic
self-interest granted foreign commercial vessels right of access to
some or all of their inland ports.

In commenting on the Department’s instructions, the Embassy in-
dicated that while measures of self-help had frequently been the sub-
ject of pointed discussions w 7 ith Chinese leaders in the past, it agreed
that an intensive effort should now be made to urge the overwhelming
importance of immediate reforms. 9 On May 22, 1948, Ambassador
Stuart, during a conversation with President Chiang Kai-shek, handed
him a memorandum dealing with the problems of domestic reform in
China. 10 The memorandum was represented, not as an official docu-
ment, but as the Ambassador’s views as to what basic steps should be
taken. It covered many of the points made in the Department’s in-
struction of May 15, but the contents of the memorandum were ar-
ranged to correspond to the ten points of reform made in Premier

9 See annex 180.

10 See annex 182.

THE PROGRAM OF AMERICAN ECONOMIC AID

397

Chang Chun’s statement of January 28, 1948. The Ambassador’s
memorandum subsequently was used by members of the Embassy as
the basis for informal discussions with numerous other high Chinese
Government officials, to whom the points were elaborated in greater
detail with emphasis on the urgent need for early actions of specific
and concrete character.

Informal contacts similar to the “corollary discussions” were main-
tained with various Chinese Government officials by members of the
United States Embassy and by officers of the Eca mission in China
throughout the period of the economic aid program. It was considered
that American advisory assistance to the Chinese Government could
be arranged more appropriately in this manner than by the designa-
tion of American officials as advisers to various Government agencies.
The experience of foreign advisers to the Chinese Government, of
whom there had been many in the past, provided little ground for
believing that the results of such designation would be fruitful, nor
did it seem wise that the American Government should be burdened
in this manner, even by implication, with responsibility for actions, or
failure to act, by the Chinese Government. It appeared axiomatic
that, if Chinese leaders were disposed to accept advice, they would do
so whether the advice was given in an official capacity or on an informal
basis. Moreover, the Chinese Government was understandably sensi-
tive to the type and degree of American guidance that might be asso-
ciated with American aid. It was recalled that the Chinese Govern-
ment stated in its memorandum of December 22, 1947, that while it
intended to employ, on its own accord, American personnel to assist
in planning for financial, monetary and other administrative reforms,
“the employment of these personnel will not, however, be made an
international legal obligation of the Chinese Government in order to
avert infringement on China’s sovereignty and administrative in-
tegrity.”

On August 5, 1948, notes were exchanged between the United States
and Chinese Governments 11 providing for the establishment of a
Joint Commission on Rural Reconstruction in China and defining the
scope and terms of the program which the Commission might under-
take. Authority was given the Commission to formulate and carry
cut a broad program, with emphasis on the educational aspects of
improving agricultural techniques in rural areas. The three Chinese
members of the Commission were appointed immediately after the
exchange of notes and the two American members on September 16,
1948. The Commission formally assembled in Nanking on October

n See annex 183.

398

U. S. RELATIONS WITH CHINA

1 and, m accordance with a provision in the agreement, elected one
of the Chinese members as its chairman.

PROGRESS OF THE ECONOMIC AID PROGRAM

The following brief summary of the accomplishments of the. eco-
nomic aid program is taken from a detailed account of the program
published by the Economic Cooperation Administration in February
1949 entitled Economic Aid wader the China Aid Act of 1948 : 12

“Food has been provided through a controlled ration system to
nearly 13,000,000 inhabitants of seven major Chinese cities. Cotton
financed under the program has kept the mills operating in China’s
largest industry, providing cloth for direct consumption, for barter
to encourage the bringing of indigenous food into the cities, and for
export to earn foreign exchange that can be used to pay for more
imports. Petroleum has kept in operation basic industries, and also
provided goods for which the farmers in the countryside are prepared
to exchange their produce. Fertilizer imports have been planned for
use in the production of spring crops in 1949. A Joint Commission
on Rural Reconstruction has been established, and has formulated prin-
ciples and a program for attacking some of the root causes of poverty
and unrest among China’s vast rural population. An industrial pro-
gram of replacement machinery and reconstruction projects has been
initiated with the participation of private American engineering firms;
although actual procurement and construction had to be suspended
for the most part due to uncertainties connected with the civil war,
much useful engineering survey work has been done. A ‘counter-
part’ fund in local currency, established by agreement with the Chinese
Government and managed jointly by Chinese and Americans, has
been used to maintain many hospitals, welfare programs, and dike-
building projects.

“In spite of the growing chaos around them, these activities, by and
large, have been managed with care and have been carried out suc-
cessfully within their own limited terms of reference. In the case of
the commodity program particularly, the supplies provided have been
an important and at times crucial factor in keeping unrest to a mini-
mum in the main cities of the coastal areas controlled by the National-
ist Government. In this narrow but significant sense, therefore, the
efforts of Eca in China have been constructive and useful. Supplies
financed by the United States have been and are being effectively dis-
tributed to the people intended to receive them.”

Of the total 275 million dollar appropriation for economic aid to

“See annex 184

THE PROGRAM OF AMERICAN ECONOMIC AID

399

China, Eca originally had earmarked 203.8 million dollars for com-
modities, 67.5 million dollars for industrial and transportation recon-
struction and replacement projects, 2.5 million dollars for dollar ex-
penditures of the Joint Commission on Rural Reconstruction, and
1.2 million dollars for Eca administration. By April 3, 1949, the
expiry date of the China Aid Act of 1948, 215.0 million dollars had
been authorized for procurement of commodities, and about 139.2
million dollars of these supplies had arrived in China.

During the period of these expenditures, the economy of Nationalist
China continued to deteriorate at an accelerating pace. The budg-
etary deficit was unquestionably much more serious in 1948 than in
preceding years. The loss of territory to Communist forces, the fur-
ther dislocation of transportation and productive facilities and a sharp
increase in smuggling combined to reduce receipts from taxes, Gov-
ernment-operated enterprises and customs duties. Increased mili-
tary expenditures were incurred as the civil war spread and mounted
in intensity.

Prices in August 1948, as measured by the Shanghai wholesale price
index, were more than 3 million times those of the prewar half year,
January to June 1937. In the first 7 months of 1948 prices increased
more than 45 times and the black market rate for United States dollar
notes increased over 50 times. Moreover the rate of price increase for
the period progressively exceeded the rate of expansion of the note
issue, as confidence in the currency diminished, and accordingly the
value of the total currency outstanding contracted in terms of pur-
chasing power. This contraction of the purchasing power of an
expanding note issue has been observed in the later stages of currency
inflation in other countries.

Private capital was almost wholly directed into nonproductive chan-
nels of financial speculation and hoarding of commodities, and banks
demonstrated an increasing reluctance to extend long-term credit
for industrial investment. The loss of economic resources through
contraction of the area controlled by the National Government was
illustrated most significantly by the abandonment in December 1948
of the Kailan mines located near Tientsin. These mines had been
supplying more than half of the coal consumed in all of Nationalist-
controlled China.

In the mid-summer of 1948 there was a sharp increase in the velocity
of currency circulation which sent prices to astronomical figures. The
Chinese Government was unwilling to print new currency notes of
sufficiently large denominations to keep pace with prices, and it had
become impossible to print adequate quantities of currency of lower
denominations, which had to be used in such bulk that bushel baskets

400

U. S. RELATIONS WITH CHINA

were required for currency transactions. The currency had become
almost worthless as a medium of exchange.

On August 19, 1948, the Chinese Government announced the intro-
duction of a new gold yuan currency to replace the old Chinese Na-
tional currency at a ratio of G.Y.l to C.N. 3 million. The rate of
exchange for one United States dollar was set at G. Y. 4. The Govern-
ment emphasized that introduction of the gold yuan would be accom-
panied by drastic financial reforms to curtail expenditures and increase
revenue. It was represented that these reforms would reduce the
budgetary deficit and the need for new note issue with the result that
the internal purchasing power and the foreign exchange value of the
new currency could be maintained.

Domestic prices and foreign exchange rates were pegged and drastic
penalties prescribed for black market operations. The public was
required to sell its gold, silver, and foreign currency notes in China to
the Government at the pegged rates, and Chinese nationals were in-
structed to register with the Government all holdings of foreign ex-
change abroad. To bolster public confidence in the measures, the
Government announced that, although the new currency was incon-
vertible, it was to be backed by gold, silver and other official foreign
exchange holdings amounting to 200 million dollars and by the secu-
rities of certain Government-owned enterprises valued at 300 million
dollars. Moreover, it was stated that the new note issue would be
limited to G.Y. 2 billion.

The combination of stringent police measures and initial public
confidence served for a few weeks to keep the Chinese economy func-
tioning at the frozen price and foreign exchange levels of the August
19 reforms. The Government reported collection of more than 150
million dollars in foreign exchange for which it paid out new gold
yuan.

It became evident shortly, however, that the Chinese Government
was taking no effective action to curtail expenditures or to increase
revenue, for new currency continued to be issued in the previous
volume to cover the budgetary deficit. In addition, large quantities
of gold yuan had been exchanged for foreign currencies and gold,
much of which had heretofore been hoarded, and this added greatly
to the total volume of currency competing for goods. Between
August 19 and October 1 the note issue had increased almost five
times . 13

The continuing inflationary pressures revealed themselves first in
West and North China where police enforcement was relatively
ineffective. At Shanghai, however, Chiang Ching-kuo, the Gen-

“ See annex 157 (a)-(c).

THE PROGRAM OF AMERICAN ECONOMIC AID

401

eralissimo’s son, pursued a ruthless enforcement campaign. The
price differential between the coastal cities and the hinterland and
the maintenance of increasingly artificial foreign exchange rates,
seriously impeded the movement of food and raw materials for urban
consumption and export. Insistence on maintenance of the August
19 price levels, which was almost fanatical at Shanghai, resulted in
the depletion of food and other commodity stocks in the cities to
dangerously low levels, and brought about an almost complete stag-
nation of economic activity. Finally, the regulations became so in-
effective and disruptive of economic activity that they were revoked
officially in the face of a downward slide of the gold yuan which con-
tinued thereafter at a rapid rate. By late April and early May,
1949, the gold yuan, which had been introduced at a ratio of G.Y. 4
to U.S. $1, had depreciated in the open market to quotations ranging
between G.Y. 5 million and 10 million to U.S. $1.

The Eca helped to alleviate the food crisis brought about by the
extremes to which the Chinese Government’s emergency reform
measures of August 19 were carried. Steps were taken to speed up
Eca deliveries of cereals and this proved to be of crucial importance
in allaying unrest in the major cities. However, even after the reform
measures were revoked, Chinese Government procurement of food for
its share of the city rationing programs continued to lag seriously,
and Eca thereafter provided a major portion of the ration require-
ments.

During the fall of 1948, the growing seriousness of the military
situation in North China and Manchuria made it necessary for Eca
to suspend preparatory work on industrial reconstruction and replace-
ment projects located in those areas. In view of the rapid disinte-
gration of the National Government military position which oc-
curred shortly thereafter, the Eca Administrator announced on
December 21, 1948, that work on the entire industrial program was,
to a large extent, being suspended. At the time of suspension, all
the projects were still in the preliminary engineering stage, no funds
having been actually committed for procurement.

The impending fall of Peiping and Tientsin to Chinese Communist
control confronted Eca with the problem of how its operations in
North China should be handled in that event. Eca referred the mat-
ter to the Department of State, which took the position that Eca aid
should be discontinued to areas of China that came under Chinese
Communist control. On December 30, 1948, the President orally com-
municated to the Acting Secretary of State his confirmation of the

402

U. S. RELATIONS WITH CHINA

Departments position, which was recorded in the Department as
follows :

“1. That this Government would continue to support through the
implementation of the China Aid Act the present Chinese Government
or a legal successor Government. However, should a government
come into power which comes to terms with the Chinese Communists,
all aid should cease irrespective of whether the Communists are in
numerical ascendency or not.

“2. When the Chinese Communists either directly or indirectly
through a coalition government take control over any area, all Eca
supplies ashore or in the process of being unloaded can be distributed
under conditions similar to those now prevailing. However, Eca
supplies which have not yet reached such ports should be diverted
elsewhere.

“3. That the military supplies under the China Aid Act should be
delivered in so far as possible in accordance with the advice of our
military authorities in China.”

The intention of the second sentence of numbered paragraph (1)
quoted above was that aid should cease to those areas that came under
the control of a government in which the Chinese Communists par-
ticipated. On January 14, 1949, the President’s decision was reviewed
by the Cabinet, with the Eca Administrator present, at which time it
was reaffirmed.

Tientsin fell to Chinese Communist assault on January 15, 1949,
and a peaceful takeover of Peiping by the Chinese Communists oc-
curred during the last days of January. Although Eca stocks in
both cities were small at the time, the Eca representatives were
prepared in accordance with the President’s decision, to complete their
distribution of existing stocks through channels previously agreed
upon and under appropriate supervision. In both cities, however, the
Chinese Communists seized Eca stocks of wheat and flour, which they
distributed to selected groups of civilian workers rather than to the
population generally. Eca stocks of cotton yarn and cloth at Tient-
sin were sealed by the Chinese Communists and Eca officers were
unable to make any disposition of these stocks before their departure
from the area on March 21, 1949.

Meanwhile, Generalissimo Chiang Kai-shek had retired from the
scene in Nanking on January 21 and the reconstituted cabinet under the
leadership of Acting President Li Tsung-jen was endeavoring to find
a basis upon which peace negotiations could be carried on with the
Chinese Communists. (These developments are treated in detail in
chapter VI.)

The Chinese Government’s official foreign exchange reserves at this

THE PROGRAM OF AMERICAN ECONOMIC AID

403

time consisted in large part of gold and silver bullion in China. The
Central Bank reported at the end of the first quarter of 1949 total
gold and silver holdings of approximately 160 million dollars,
although other reliable sources indicated that such holdings were
as much as 250 million dollars. The bulk of the bullion had been
removed to Taiwan and Amoy before the Generalissimo retired.
The Acting President later sent an emissary to see the Generalissimo
to arrange for the return of the gold and silver and on April 15
the Control Yuan at Nanking passed a bill requesting their return
to the Government. Although the Generalissimo subsequently made
available to the Government at Nanking 17 million silver coins
from stores at Amoy, efforts to obtain the use of the reserves at Amoy
and Taiwan for emergency expenditures by Nanking were generally
unavailing.

The Government at Nanking, in its search for means to retain some
semblance of order in the increasingly chaotic administrative and
financial conditions obtaining in the lower Yangtze valley, approached
the United States Government frequently during the late winter and
spring of 1949 seeking to obtain silver with which to meet its military
and administrative expenditures. The proposals varied in detail from
time to time, but essentially they all amounted to the advance of
silver by the United States Government to underwrite the Chinese
Government’s budgetary deficit. The Departments of State and
Treasury gave no encouragement to these Chinese proposals.

On March 23, the Embassy commented on a Chinese proposal for
silver aid as follows :

“Although we agree that the financial situation is growing increas-
ingly perilous, we can find no support on economic grounds for a cur-
rency stabilization loan. The intensifying currency crisis essentially
arises from the internal budget deficit and not from the shortage of
foreign exchange. The Eca commodity import program has sub-
stantially answered the latter phase of the problem.

“Any ‘stabilization loan 5 at this time would be merely budget deficit
assistance. The deficit is an internal Chinese problem and the Govern-
ment has consistently proved unable or unwilling to act either to in-
crease Government revenues or reduce expenses. The fact of the defi-
cit alone is not the cause but the symptom of the fundamental im-
balance between the tremendous demand arising from the weight of
the Government’s military structure, administrative incompetence and
corruption, upon increasingly limited goods and services. No fiscal
program involving quantitative money manipulations of the type
monotonously recurring in the past as ‘financial reform’ can signif-
icantly affect this imbalance. We know of no C hin ese Government

404

U. S. RELATIONS WITH CHINA

fiscal program proposed or in prospect which offers any possibility
of effective results in meeting the monetary difficulties.”

On April 6, the Ambassador reported as follows : “Both the Acting
President and the Premier have again and separately raised the
question of U. S. financial and economic assistance. The Prime Min-
ister is still hoping to secure a silver loan from the U. S. and suggested
a lien on the island of Taiwan, or on its products, as security. The
Acting President, through his emissary . . . emphasized the im-

minent danger of collapse of the Government because of the fiscal
situation ; he asked if this did not warrant American aid sufficient to
keep the Nationalist Government going at least through the peace
talks. In response to the latter’s comment, I felt compelled to speak
frankly. I pointed out the difficulties from the American standpoint
in securing financial assistance. I called attention to the well-known
fact that the Chinese Government had reportedly something less than
300 million dollars' in gold and silver bullion and foreign exchange ;
that most of this reserve existed, or was made possible, because of
previous American aid ; that it would seem natural to draw upon this
fund for the present emergency. Our officials in Washington were,
of course, fully aware of this reserve fund. I continued that if peace
could be secured, it would not be too difficult for the new Govern-
ment to build up a fresh reserve in an atmosphere of peace and a
period of productive activity, that if the fighting were renewed, these
reserves would either fall under control of the Communists or be
consumed within a brief period of time in efforts toward further
resistance.”

CONTINUATION OF ECONOMIC AID BEYOND APRIL 3, 1949

On March 31 the Chinese Ambassador submitted to the Department
of State proposals for the interim extension of the Eca Program
beyond April 3 to June 30, 1949, and for a new economic aid program
of 420 million dollars during the fiscal year 1950. These proposals
were received while consideration was being given by Congress to
recommendations from Eca and the Department of State regarding
limited extension of the economic aid program for China. Careful
consideration had been given during the early months of 1949 by Eca
and the Department of State to the question of what recommendations
should be made to Congress for continuation or cessation of American
aid to China before the authority contained in the China Aid Act of
1948 expired on April 3, 1949. These studies were continued in early
1949. The following facts and observations were fundamental to a
decision on this question.

Foreign aid authorized for the Chinese Government since V-J Day

THE PROGRAM OF AMERICAN ECONOMIC AID

405

had amounted to approximately 2,254 million dollars, of which the
United States had provided 90 percent or slightly more than 2 billion
dollars in the form of grants and credits. Aid authorized by the
United States had been divided almost equally between military and
economic purposes. Total American grants and credits since V-J
Day had been equivalent in value to more than 50 percent of the
monetary expenditures of the Chinese Government and was of pro-
portionately greater magnitude in relation to the budget of that Gov-
ernment than the United States had provided to any nation of Western
Europe since the end of the war. In addition to its aid in the form
of grants and credits, the United States had sold the Chinese Govern-
ment large quantities of military and civilian type surplus property
for a nominal return. Surplus property with a total estimated pro-
curement cost of over 1 billion dollars had been sold China for an
agreed realization to the United States of 232 million dollars. More-
over, the United States had assisted the Chinese Government through
the provision of military advisory personnel, and had “abandoned”
and transferred substantial quantities of military material in China,
for which there is no estimated dollar value. Finally, between V-J
Day and the end of 1947, the Chinese Government had drawn down the
largest gold and United States dollar reserves it had ever held by
approximately 700 million dollars to finance commodity imports and
the sale of gold within China.

The following summary table lists the various measures of foreign
economic and military aid authorized for China since V-J Day. A
more detailed description of the U. S. Government measures listed
below is contained in annex 185.

I. U. S. Government Grants and Credits

Grants: ( Millions of U. S. dollars )

Lend-lease $513. 7

Military aid under Sino- American Cooperative

Organization Agreement 17. 7

U. S. contribution to Unrra China program . 474. 0

U. S. share of Unrra contribution to Botra . 3. 6

Ammunition abandoned and transferred by
U. S. Marines in North China (over 6,500
tons) (no estimate of value available).
Transfer of U. S. Navy vessels (P. L. 512) (valued

at procurement cost) 141. 3

U. S. foreign relief program 46. 4

Eca program 275. 0

$125 million grant under China Aid Act of

1948 125. 0

Total grants $1,596. 7

406

U. S. RELATIONS WITH CHINA

I. U. S. Government Grants and Credits — Continued

Credits * ( Millions of U. S. dollars)

Lend-lease $181. 0

Lend-lease “pipe line” credit 51. 7

Export-Import Bank credits 82. 8

Surplus property sales for credit:

Sale of excess stocks of U. S. Army in West

China 20. 0

Oflc dockyard facilities sales 4. 1

Civilian surplus property transfers (under
August 30, 1946, bulk sale agree-
ment) 55. 0

Maritime Commission Ship Sales .... 16. 4

Total credits $411.0

Total grants and credits

$2, 007. 7

II. Other Foreign Grants and Credits

Balance of Unrra China program

Balance of TJnrra contribution to Botra

Canadian credit

$184. 4
1. 4
60. 0

Total other foreign aid

$245. 8

Total foreign grants and credits since V-J Day . . . $2, 253. 5

III. U. S. Government Surplus Property Sales
(in millions of U. S. dollars)

Procurement cost

Agreed realiza-
tion to U. S.

Sale of excess stocks of U. S. Army in West China .

Oflc dockyard facilities sales

Civilian surplus property transfers (under August

30, 1946, agreement)

Maritime Commission ship sales

Military surplus property transfers

Total SURILUS IROIERTY SALES . . . .

(Not available)

u <t

$900
77.3
100. 8

$20
4. 1

175.
26. 2
6. 7

$1, 078. 1

i $232. 0

i Includes $95.5 million to be paid on credit terms as indicated in Table I above under credits.

Despite provision of this foreign aid, the position of the Chinese
Government had deteriorated steadily, both militarily and economi-
cally. The Chinese Government had failed to demonstrate its capacity
to cope with the immense and complicated forces at work in China.
In the fields of economic policy and civil and military administration,
the Chinese Government had undertaken no effective initial steps

THE PROGRAM OF AMERICAN ECONOMIC AID

407

directed toward correcting the basic maladjustments of the Chinese
economy and the malpractices of its administration. Governmental
expenditures and the issuance of the fiat paper money had proceeded
at an uncontrolled and increasing rate. There had been no evidence
of successful measures to augment revenue, nor had there been any
evidence of elimination of maladministration in the civilian and
military bureaucracy. The measures of attempted financial reform
by the Government were poorly conceived, and in effect, had increased
rather than retarded the rate of economic deterioration.

By March 1949, the military position of the Chinese Government
had collapsed to the point where the Chinese Communists controlled
the major centers of population and the railroads from Manchuria
south to the Yangtze Valley and were in a position to take control of
Nanking, Hankow and Shanghai by military or political means within
a relatively short period of time, and on their own terms. The military
collapse of the Chinese Government had for the most part been the
consequence of inept leadership and lack of will to fight on the part
of its armies, rather than of inadequate military supplies. The loss
and abandonment of military materiel by Chinese Government forces
had constituted a large source of military supply for the Chinese
Communists. It was apparent that, unless there were an unexpected
and unprecedented improvement in the administrative and military
operations of the National Government and in the will to fight of its
armies, the Chinese Communists would not have difficulty in expanding
their control throughout the south and west of China if, as soon as they
consolidated their position in the north, they chose to move southward.
It was the considered judgment of responsible American Government
observers in China that only the extension of unlimited American
economic and military aid, involving extensive control of Chinese
Government operations by American military and administrative per-
sonnel, and including the immediate employment of United States
armed forces to block the southern advance of the Communists, would
enable the National Government to maintain a foothold in South China
against a determined advance by the Chinese Communists. It was be-
lieved that under the existing circumstances, however, involvement of
the United States in the Chinese civil war by such action would be
clearly contrary to American interests.

The above considerations led the Department of State to view un-
favorably a bill (S. 1063) that had been introduced in the Senate call-
ing for 1.5 billion dollars of military and economic aid for China.
Upon a request by the Senate Foreign Relations Committee for com-
ment on the bill, Secretary of State Acheson stated the Department’s

408

TJ. S. RELATIONS WITH CHINA

views in a letter of March 15, 1949, to Senator Tom Connally, Chair-
man of the Committee. 14

Although the relative military capabilities of the Chinese Gov-
ernment and the Chinese Communists were evident, the political situa-
tion was highly uncertain. Acting President Li Tsung-jen had en-
tered into peace negotiations with the Chinese Communists, thus
reflecting a widespread desire among the Chinese people for peace at
all costs. The intentions of the Chinese Communists were far from
clear. Although there was little that the United States could do to
influence the course of events in China, it would have been inconsistent
with the traditional relations between the United States and China
for the United States, in the face of extreme adversity for the Chinese
people, abruptly to cease on April 3, 1949, economic aid to the
Chinese Government which it continued to recognize. It was believed
that the United States should certainly continue its economic relief
until the next harvest in areas of China that remained free of Com-
munist domination.

The Department of State therefore supported an Eca proposal
that Congress be requested to amend the China Aid Act of 1948 to
permit obligation of existing appropriations until December 31, 1949.
It was estimated that by April 3 there would remain approximately
54 million dollars unobligated, and that this sum would enable con-
tinuation of the commodity assistance program at the existing level
to Central and South China and Taiwan substantially until the mid-
summer harvest became available; that if, in the meantime, Nanking
and Shanghai should come under Chinese Communist control, re-
maining funds might prove to be sufficient to continue commodity
assistance for a longer period in South China and Taiwan. It was
also believed that, in so far as funds were available, the rural recon-
struction program should be continued in coastal and interior areas of
China so long as circumstances made it possible to do so.

On April 14, 1949, the Congress passed legislation which, in effect,
carried out the recommendations of Eca and the Department of
State. Rather than amending the China Aid Act of 1948, Congress
wrote new legislation which made available to the President such
portion of the appropriation for economic aid as remained unobli-
gated on April 3, 1949, or might subsequently be released from obliga-
tion. In view of the extreme fluidity and uncertainty of the situation
in China, the new legislation authorized the President to use these
funds in such manner and on such terms and conditions as he might
determine for aid to those areas of China that remained free of

14 See annex 186.

THE PROGRAM OF AMERICAN ECONOMIC AID

409

Chinese Communist control. Moreover, the funds were made avail-
able for obligation through February 15, 1950, in order that the expira-
tion of authority would occur while the next Congress was in session.

THE APPRAISAL OF ACTING PRESIDENT LI

Perhaps the aptest and most tragic summary of American inten-
tions toward China and of the reasons for the present predicament of
China was given by the Acting President, General Li Tsung-jen, him-
self. The first three paragraphs of a letter he wrote to President
Truman on May 5, 1949, concern the events of the period with which
this paper is concerned and read as follows :

“Throughout our war of resistance against Japanese aggression,
the United States of America continuously extended to us her moral
and material assistance, which enabled our country to carry on an
arduous struggle of eight long years until final victory was achieved.
The sincere friendship thus demonstrated by the United States has
contributed not only to strengthen further the traditional ties between
our two countries but to win the deep gratitude and unbounded good-
will of the people of China.

“This policy of friendly assistance was continued when some years
ago General George C. Marshall, under instructions from your good
self, took up the difficult task of mediation in our conflict with the
Chinese Communists, to which he devoted painstaking effort. All
this work was unfortunately rendered fruitless by the lack of sincerity
on the part of both the then Government and the Chinese Communists.

“In spite of this, your country continued to extend its aid to our
Government. It is regrettable that, owing to the failure of our then
Government to make judicious use of this aid and to bring about appro-
priate political, economic and military reforms, your assistance has
not produced the desired effect. To this failure is attributable the
present predicament in which our country finds itself.”

Annexes

Annexes to Chapter I: A Century of
American Policy, 1844—1943
1

Treaty of Wanghia (Cushing Treaty ), July 3 ,

[Extract]

Article II

Citizens of the United States resorting to China for the purposes of commerce
will pay the duties of import and export prescribed in the Tariff, which is fixed by
and made a part of this Treaty. They shall, in no case, be subject to other or
higher duties than are or shall be required of the people of any other nation
whatever. Fees and charges of every sort are wholly abolished, and officers of
the revenue, who may be guilty of exaction, shall be punished according to the
laws of China. If the Chinese Government desire to modify, in any respect, the
said tariff, such modifications shall be made only in consultation with Consuls or
other functionaries thereto duly authorized in behalf of the United States,
and with consent thereof. And if additional advantages or privileges, of what-
ever description be conceded hereafter by China to any other nation, the United
States, and the citizens thereof, shall be entitled thereupon, to a complete, equal,
and impartial participation in the same.

2

Treaty of Tientsin ( Reed Treaty ) , June 18, 1858 1 2

[Extract]

Article XXX

The contracting parties hereby agree that should at any time the Ta Tsing
Empire grant to any nation, or the merchants or citizens of any nation, any
right, privilege or favor, connected either with navigation, commerce, political
or other intercourse, which is not conferred by this treaty, such right, privilege
and favor shall at once freely inure to the benefit of the United States, its public
officers, merchants and citizens.

1 Hunter Miller, ed.. Treaties and Other International Acts of the United States of Amer-
ica, vol. 4, pp. 559, 560.

2 Ihid., vol. 7, pp. 793, 804.

413

414

TJ. S. RELATIONS WITH CHINA

3

Treaty of Washington (Burlingame Treaty ) , July 28, 1868 s

[Extract]

Article VI

Citizens of the United States visiting or residing in China shall enjoy the same
privileges, immunities or exemptions in respect to travel or residence as may there
be enjoyed by the citizens or subjects of the most favored nation ; and, reciprocally,
Chinese subjects visiting or residing in the United States shall enjoy the same
privileges, immunities and exemptions in respect to travel or residence as may
there be enjoyed by the citizens or subjects of the most favored nation. But
nothing herein contained shall be held to confer naturalization upon citizens
of the United States in China, nor upon the subjects of China in the United States.

4

The Open Door Notes

Secretary Hay to the Ambassador in Great Britain {Choate) * * 4

Washington, September 6 , 1899

Sib: The Government of Her Britannic Majesty has declared that its policy
and its very traditions precluded it from using any privileges which might be
granted it in China as a weapon for excluding commercial rivals, and that freedom
of trade for Great Britain in that Empire meant freedom of trade for all the
world alike. While conceding by formal agreements, first with Germany and
then with Russia, the possession of “spheres of influence or interest” in China
in which they are to enjoy special rights and privileges, more especially in
respect of railroads and mining enterprises, Her Britannic Majesty’s Govern-
ment has therefore sought to maintain at the same time what is called the “open-
door” policy, to insure to the commerce of the world in China equality of treat-
ment within said “spheres” for commerce and navigation. This latter policy is
alike urgently demanded by the British mercantile communities and by those of
the United States, as it is justly held by them to be the only one which will
improve existing conditions, enable them to maintain their positions in the mar-
kets of China, and extend their operations in the future. While the Government
of the United States will in no way commit itself to a recognition of exclusive
rights of any power within or control over any portion of the Chinese Empire
under such agreements as have within the last year been made, it can not conceal
its apprehension that under existing conditions there is a possibility, even a
probability, of complications arising between the treaty powers which may
imperil the rights insured to the United States under our treaties with China.

This Government is animated by a sincere desire that the interests of our
citizens may not be prejudiced through exclusive treatment by any of the con-

* William M. Malloy, ed., Treaties , Conventions, International Acts, Protocols and Agree-

ments Between the United States of America and Other Powers, vol. I, pp. 234, 236.

4 Foreign Relations of the United States , 1899, p. 131. Similar instructions were sent
to American Diplomatic Representatives at Paris, Berlin, St. Petersburg, Rome, and
Tokyo.

ANNEXES

415

trolling powers within their so-called “spheres of interest” in China, and hopes
also to retain there an open market for the commerce of the world, remove
dangerous sources of international irritation, and hasten thereby united or
concerted action of the powers at Pekin in favor of the administrative reforms
so urgently needed for strengthening the Imperial Government and maintaining
the integrity of China in which the whole western world is alike concerned. It
believes that such a result may be greatly assisted by a declaration by the various
powers claiming “spheres of interest” in China of their intentions as regards
treatment of foreign trade therein. The present moment seems a particularly
opportune one for informing Her Britannic Majesty’s Government of the desire
of the United States to see it make a formal declaration and to lend its support
in obtaining similar declarations from the various powers claiming “spheres of
influence” in China, to the effect that each in its respective spheres of interest
or influence

First. Will in no wise interfere with any treaty port or any vested interest
within any so-called “sphere of interest” or leased territory it may have in
China.

Second. That the Chinese treaty tariff of the time being shall apply to all
merchandise landed or shipped to all such ports as are within said “sphere of
interest” (unless they be “free ports”), no matter to what nationality it may
belong, and that duties so leviable shall be collected by the Chinese Government.

Third. That it will levy no higher harbor duties on vessels of another nation-
ality frequenting any port in such “sphere” than shall be levied on vessels of its
own nationality, and no higher railroad charges over lines built, controlled, or
operated within its “sphere” on merchandise belonging to citizens or subjects
of other nationalities transported through such “sphere” than shall be levied on
similar merchandise belonging to its own nationals transported over equal
distances.

The recent ukase of His Majesty the Emperor of Russia, declaring the port of
Ta-lien-wan open to the merchant ships of all nations during the whole of the
lease under which it is to be held by Russia, removing as it does all uncertainty
as to the liberal and conciliatory policy of that power, together with the assurances
given this Government by Russia, justifies the expectation that His Majesty will
cooperate in such an understanding as is here proposed, and our ambassador at
the court of St. Petersburg has been instructed accordingly to submit the proposi-
tions above detailed to His Imperial Majesty, and ask their early consideration.
Copy of my instruction to Mr. Tower is herewith inclosed for your confidential
information.

The action of Germany in declaring the port of Kiaochao a “free port,” and the
aid the Imperial Government has given China in the establishment there of a
Chinese custom-house, coupled with the oral assurance conveyed the United
States by Germany that our interests within its “sphere” would in no wise be
affected by its occupation of this portion of the province of Shang-tung, tend to
show that little opposition may be anticipated from that power to the desired
declaration.

The interests of Japan, the next most interested power in the trade of China,
will be so clearly served by the proposed arrangement, and the declaration of its
statesmen within the last year are so entirely in line with the views here
expressed, that its hearty cooperation is confidently counted on.

You will, at as early date as practicable, submit the considerations to Her
Britannic Majesty’s principal secretary of state for foreign affairs and request
their immediate consideration.

416

U. S. RELATIONS WITH CHINA

I inclose herewith a copy of the instruction sent to our ambassador at Berlin
bearing on the above subject. 5 6

I have the honor to be [etc.] John Hay.

Secretary Hay to American Diplomatic Representatives at London ,
Paris , Berlin , St. Petersburg , Rome , and Tokyo 6

Washington, March 20, 1900

Sib : The Government having accepted the declaration suggested by the

United States concerning foreign trade in China, the terms of which I transmitted

to you in my instruction No. of , and like action having been taken by

all the various powers having leased territory or so-called “spheres of interest”
in the Chinese Empire, as shown by the notes which I herewith transmit to you, 7
you will please inform the Government to which you are accredited that the con-
dition originally attached to its acceptance — that all other powers concerned
should likewise accept the proposals of the United States — having been complied

with, this Government will therefore consider the assent given to it by as

final and definitive.

You will also transmit to the minister for foreign affairs copies of the present
inclosures, 7 and by the same occasion convey to him the expression of the sincere
gratification which the President feels at the successful termination of these
negotiations, in which he sees proof of the friendly spirit which animates the
various powers interested in the untrammeled development of commerce and
industry in the Chinese Empire, and a source of vast benefit to the whole commer-
cial world.

I am [etc.] John Hay.

5

Secretary Hay to American Diplomatic Representatives at Berlin ,
Paris , London, , Rome , St. Petersburg , Vienna, Brussels, Madrid,
Tokyo, The Hague, and Lisbon 8

Washington, July 3 , 1900

In this critical posture of affairs in China it is deemed appropriate to define
the attitude of the United States as far as present circumstances permit this to
be done. We adhere to the policy initiated by us in 1857 of peace with the
Chinese nation, of furtherance of lawful commerce, and of protection of lives
and property of our citizens by all means guaranteed under extraterritorial
treaty rights and by the law of nations. If wrong be done to our citizens we
propose to hold the responsible authors to the uttermost accountability. We
regard the condition at Pekin as one of virtual anarchy, whereby power and
responsibility are practically devolved upon the local provincial authorities. So
long as they are not in overt collusion with rebellion and use their power to
protect foreign life and property, we regard them as representing the Chinese
people, with whom we seek to remain in peace and friendship. The purpose of
the President is, as it has been heretofore, to act concurrently with the other

5 Not printed.

6 Foreign Relations, 1899, p. 142.

7 Not printed.

8 Foreign Relations 1900, p. 299.

ANNEXES

417

powers ; first, in opening up communication with Pekin and rescuing the Amer-
ican officials, missionaries, and other Americans who are in danger ; secondly,
in affording all possible protection everywhere in China to American life and
property; thirdly, in guarding and protecting all legitimate American interests;
and fourthly, in aiding to prevent a spread of the disorders to the other provinces
of the Empire and a recurrence of such disasters. It is of course too early to
forecast the means of attaining this last result ; but the policy of the Government
of the United States is to seek a solution which may bring about permanent
safety and peace to China, preserve Chinese territorial and administrative entity,
protect all rights guaranteed to friendly powers by treaty and international
law, and safeguard for the world the principle of equal and impartial trade with
all parts of the Chinese Empire.

You will communicate the purport of this instruction to the minister for
foreign affairs.

John Hay.

6

Treaty Between the United States and China for the Extension of the
Commercial Relations Between Them, Signed at Shanghai, October
8, 1903 9

The United States of America and His Majesty the Emperor of China, being
animated by an earnest desire to extend further the commercial relations be-
tween them and otherwise to promote the interests of the peoples of the two
countries, in view of the provisions of the first paragraph of Article XI of the
final Protocol signed at Peking on the seventh day of September, A. D. 1901,
whereby the Chinese Government agreed to negotiate the amendments deemed
necessary by the foreign Governments to the treaties of commerce and naviga-
tion and other subjects concerning commercial relations, with the object of facili-
tating them, have for that purpose named as their Plenipotentiaries : —

The United States of America —

Edwin H. Conger, Envoy Extraordinary and Minister Plenipotentiary of
the United States of America to China —

John Goodnow, Consul-General of the United States of America at
Shanghai —

John F. Seaman, a Citizen of the United States of America resident at
Shanghai —

And His Majesty the Emperor of China —

Lii Hai-huan, President of the Board of Public Works—

Sheng Hsuan-huai, Junior Guardian of the Heir Apparent. Formerly
Senior Vice-President of the Board of Public Works —

who, having met and duly exchanged their full powers which were found to be
in proper form, have agreed upon the following amendments to existing treaties
of commerce and navigation formerly concluded between the two countries, and
upon the subjects hereinafter expressed connected with commercial relations,
with the object of facilitating them.

9 Ibid., 1903, p. 91.

418

XT. S. RELATIONS WITH CHINA

Article I

In accordance with international usage, and as the diplomatic representative
of China has the right to reside in the capital of the United States, and to enjoy
there the same prerogatives, privileges and immunities as are enjoyed by the
similar representative of the most favored nation, the diplomatic representative
of the United States shall have the right to reside at the capital of His Majesty
the Emperor of China. He shall be given audience of His Majesty the Em-
peror whenever necessary to present his letters of credence or any communica-
tion from the President of the United States. At all such times he shall be
received in a place and in a manner befitting his high position, and on all such
occasions the ceremonial observed toward him shall be that observed toward
the representatives of nations on a footing of equality, with no loss of prestige
on the part of either.

The diplomatic representatives of the United States shall enjoy all the pre-
rogatives, privileges and immunities accorded by international usage to such
representatives, and shall in all respects be entitled to the treatment extended
to similar representatives of the most favored nation.

The English text of all notes or dispatches from United States officials to
Chinese officials, and the Chinese text of all from Chinese officials to United
States officials shall be authoritative.

Article II

As China may appoint consular officers to reside in the United States and to
enjoy there the same attributes, privileges and immunities as are enjoyed by
consular officers of other nations, the United States may appoint, as its interests
may require, consular officers to reside at the places in the Empire of China that
are now or that may hereafter be opened to foreign residence and trade. They
shall hold direct official intercourse and correspondence with the local officers of
the Chinese Government within their consular districts, either personally or in
writing as the case may require, on terms of equality and reciprocal respect.
These officers shall be treated with due respect by all Chinese authorities, and they
shall enjoy all the attributes, privileges and immunities, and exercise all the
jurisdiction over their nationals which are or may hereafter be extended to
similar officers of the nation the most favored in these respects. If the officers
of either government are disrespectfully treated or aggrieved in any way by the
authorities of the other, they shall have the right to make representation of the
same to the superior officers of their own government who shall see that full
inquiry and strict justice be had in the premises. And the said consular officers
of either nation shall carefully avoid all acts of offense to the officers and people
of the other nation.

On the arrival of a consul duly accredited at any place in China opened to
foreign trade it shall be the duty of the Minister of the United States to inform
the Board of Foreign Affairs, which shall, in accordance with international
usage, forthwith cause the proper recognition of the said consul and grant
him authority to act.

Article III

Citizens of the United States may frequent, reside and carry on trade, in-
dustries and manufactures, or pursue any lawful avocation, in all the ports or
localities of China which are now open or may hereafter be opened to foreign
residence and trade; and, within the suitable localities at those places which
have been or may be set apart for the use and occupation of foreigners, they may

ANNEXES

419

rent or purchase houses, places of business and other buildings, and rent or
lease in perpetuity land and build thereon. They shall generally enjoy as to
their persons and property all such rights, privileges and immunities as are or
may hereafter be granted to the subjects or citizens of the nation the most
favored in these respects.

Abticle IV

The Chinese Government, recognizing that the existing system of levying dues
on goods in transit, and especially the system of taxation known as likin , impedes
the free circulation of commodities to the general injury of trade, hereby under-
takes to abandon the levy of likin and all other transit dues throughout the
Empire and to abolish the offices, stations and barriers maintained for their
collection and not to establish other offices for levying dues on goods in transit.
It is clearly understood that, after the offices, stations and barriers for taxing
goods in transit have been abolished, no attempt shall be made to re-establish
them in any form or under any pretext whatsoever.

The Government of the United States, in return, consents to allow a surtax,
in excess of the tariff rates for the time being in force, to be imposed on foreign
goods imported by citizens of the United States and on Chinese produce destined
for export abroad or coastwise. It is clearly understood that in no case shall the
surtax on foreign imports exceed one and one-half times the import duty leviable
in terms of the final Protocol signed by China and the Powers on the seventh day
of September, A. D. 1901 ; that the payment of the import duty and surtax shall
secure for foreign imports, whether in the hands of Chinese or foreigners, in
original packages or otherwise, complete immunity from all other taxation,
examination or delay ; that the total amount of taxation, inclusive of the tariff
export duty, leviable on native produce for export abroad shall, under no cir-
cumstances, exceed seven and one-half per centum ad valorem.

Nothing in this article is intended to interfere with the inherent right of China
to levy such other taxes as are not in conflict with its provisions.

Keeping these fundamental principles in view, the High Contracting Parties
have agreed upon the following method of procedure.

The Chinese Government undertakes that all offices, stations and barriers of
whatsoever kind for collecting likin , duties, or such like dues on goods in transit,
shall be permanently abolished on all roads, railways and waterways in the
nineteen Provinces of China and the three Eastern Provinces. This provision
does not apply to the native Customs offices at present in existence on the sea-
board, at open ports where there are offices of the Imperial Maritime Customs,
and on the land frontiers of China embracing the nineteen Provinces and the
three Eastern Provinces.

Wherever there are offices of the Imperial Maritime Customs, or wherever
such may be hereafter placed, native Customs offices may also be established, as
well as at any point either on the seaboard or land frontiers.

The Government of the United States agrees that foreign goods on importa-
tion, in addition to the effective five per centum import duty as provided for
in the Protocol of 1901, shall pay a special surtax of one and one-half times
the amount of the said duty to compensate for the abolition of likin , of other
transit dues besides likin , and of all other taxation on foreign goods, and in
consideration of the other reforms provided for in this article.

The Chinese Government may recast the foreign export tariff with specific
duties, as far as practicable, on a scale not exceeding five per centum ad valorem;
but existing export duties shall not be raised until at least six months’ notice has

420

TJ. S. RELATIONS WITH CHINA

been given. In cases where existing export duties are above five per centum, they
shall be reduced to not more than that rate. An additional special surtax of
one-half the export duty payable for the time being, in lieu of internal taxation
of all kinds, may be levied at the place of original shipment or at the time of
export on goods exported either to foreign countries or coastwise.

Foreign goods which bear a similarity to native goods shall be furnished by
the Customs officers, if required by the owner, with a protective certificate for
each package, on the payment of import duty and surtax, to prevent the risk of
any dispute in the interior.

Native goods brought by junks to open ports, if intended for local consump-
tion, irrespective of the nationality of the owner of the goods, shall be reported
at the native Customs offices only, to be dealt with according to the fiscal
regulations of the Chinese Government.

Machine-made cotton yarn and cloth manufactured in China, whether by for-
eigners at the open ports or by Chinese anywhere in China, shall as regards taxa-
tion be on a footing of perfect equality. Such goods upon payment of the taxes
thereon shall be granted a rebate of the import duty and of two-thirds of the
import surtax paid on the cotton used in their manufacture, if it has been
•imported from abroad, and of all duties paid thereon if it be Chinese grown cotton.
They shall also be free of export duty, coast-trade duty and export surtax. The
same principle and procedure shall be applied to all other products of foreign type
turned out by machinery in China.

A member or members of the Imperial Maritime Customs foreign staff shall
be selected by the Governors-General and Governors of each of the various prov-
inces of the Empire for their respective provinces, and appointed in consultation
with the Inspector General of Imperial Maritime Customs, for duty in connection
with native Customs affairs to have a general supervision of their working.

Cases where illegal action is complained of by citizens of the United States
shall be promptly investigated by an officer of the Chinese Government of suffi-
ciently high rank, in conjunction with an officer of the United States Government,
and an officer of the Imperial Maritime Customs, each of sufficient standing ; and,
in the event of it being found by the investigating officers that the complaint
is well founded and loss has been incurred, due compensation shall be paid
through the Imperial Maritime Customs. The high provincial officials shall be
held responsible that the officer guilty of the illegal action shall be severely pun-
ished and removed from his post. If the complaint is shown to be frivolous
or malicious, the complainant shall be held responsible for the expenses of the
investigation.

When the ratifications of this Treaty shall have been exchanged by the High
Contracting Parties hereto, and the provisions of this Article shall have been
accepted by the Powers having treaties with China, then a date shall be agreed
upon when the provisions of this Article shall take effect and an Imperial Edict
shall be published in due form on yellow paper and circulated throughout the
Empire of China setting forth the abolition of all likin taxation, duties on goods
in transit, offices, stations and barriers for collecting the same, and of all de-
scriptions of internal taxation on foreign goods, and the imposition of the surtax
on the import of foreign goods and on the export of native goods, and the other
fiscal changes and reforms provided for in this Article, all of which shall take ef-
fect from the said date. The Edict shall state that the provincial high officials are
responsible that any official disregarding the letter or the spirit of its injunction
shall be severely punished and removed from his post.

ANNEXES

421

Article V

The tariff duties to be paid by citizens of the United States on goods imported
into China shall be as set forth in the schedule annexed hereto and made part of
this Treaty, subject only to such amendments and changes as are authorized
by Article IV of the present convention or as may hereafter be agreed upon
by the High Contracting Parties hereto. It is expressly agreed, however, that
citizens of the United States shall at no time pay other or higher duties than
those paid by the citizens or subjects of the most favored nation.

Conversely, Chinese subjects shall not pay higher duties on their imports into
the United States than those paid by the citizens or subjects of the most favored
nation.

Article VI

The Government of China agrees to the establishment by citizens of the United
States of warehouses approved by the proper Chinese authorities as bonded ware-
houses at the several open Ports of China, for storage, re-packing, or preparation
for shipment of lawful goods, subject to such necessary regulations for the pro-
tection of the revenue of China, including a reasonable scale of fees according
to commodities, distance from the custom house and hours of working, as shall
be made from time to time by the proper officers of the Government of China.

Article VII

The Chinese Government, recognizing that it is advantageous for the country
to develop its mineral resources, and that it is desirable to attract foreign as well
as Chinese capital to embark in mining enterprises, agrees, within one year from
the signing of this Treaty, to initiate and conclude the revision of the existing
mining regulations. To this end China will, with all expedition and earnestness,
go into the whole question of mining rules ; and, selecting from the rules of the
United States and other countries regulations which seem applicable to the condi-
tion of China, will recast its present mining rules in such a way as, while pro-
moting the interests of Chinese subjects and not injuring in any way the sovereign
rights of China, will offer no impediment to the attraction of foreign capital
nor place foreign capitalists at a greater disadvantage than they would be under
generally accepted foreign regulations; and will permit citizens of the United
States to carry on in Chinese territory mining operations and other necessary
business relating thereto provided they comply with the new regulations and con-
ditions which will be imposed by China on its subjects and foreigners alike,
relating to the opening of mines, the renting of mineral land, and the payment
of royalty, and provided they apply for permits, the provisions of which in regard
to necessary business relating to such operations shall be observed. The resi-
dence of citizens of the United States in connection with such mining operations
shall be subject to such regulations as shall be agreed upon by and between the
United States and China.

Any mining concession granted after the publication of such new rules shall
be subject to their provisions.

Article VIII

Drawback certificates for the return of duties shall be issued by the Im-
perial Maritime Customs to citizens of the United States within three weeks
of the presentation to the Customs of the papers entitling the applicant to
receive such drawback certificates, and they shall be receivable at their face
value in payment of dutes of all kinds (tonnage dues excepted) at the port

422

TJ. S. RELATIONS WITH CHINA

of issue ; or shall, in the case of drawbacks on foreign goods re-exported within
three years from the date of importation, be redeemable by the Imperial Mari-
time Customs in full in ready money at the port of issue, at the option of the
holders thereof. But if, in connection with any application for a drawback
certificate, the Customs authorities discover an attempt to defraud the revenue,
the applicant shall be dealt with and punished in accordance with the stipulations
provided in the Treaty of Tientsin, Article XXI, in the case of detected frauds
on the revenue. In case the goods have been removed from Chinese territory,
then the consul shall inflict on the guilty party a suitable fine to be paid to the
Chinese Government.

Article IX

Whereas the United States undertakes to protect the citizens of any country
in the exclusive use within the United States of any lawful trade-marks, pro-
vided that such country agrees by treaty or convention to give like protection
to citizens of the United States: —

Therefore the Government of China, in order to secure such protection in the
United States for its subjects, now agrees to fully protect any citizen, firm
or corporation of the United States in the exclusive use in the Empire of
China of any lawful trade-mark to the exclusive use of which in the United
States they are entitled, or which they have adopted and used, or intend to
adopt and use as soon as registered, for exclusive use within the Empire of
China. To this end the Chinese Government agrees to issue by its proper au-
thorities proclamations, having the force of law, forbidding all subjects of
China from infringing on, imitating, colorably imitating, or knowingly passing off
an imitation of trade-marks belonging to citizens of the United States, which shall
have been registered by the proper authorities of the United States at such offices
as the Chinese Government will establish for such purpose, on payment of a
reasonable fee, after due investigation by the Chinese authorities, and in com-
pliance with reasonable regulations.

Article X

The United States Government allows subjects of China to patent their in-
ventions in the United States and protects them in the use and ownership of
such patents. The Government of China now agrees that it will establish a
Patent Office. After this office has been established and special laws with regard
to inventions have been adopted it will thereupon, after the payment of the pre-
scribed fees, issue certificates of protection, valid for a fixed term of years, to
citizens of the United States on all their patents issued by the United States,
in respect of articles the sale of which is lawful in China, which do not infringe
on previous inventions of Chinese subjects, in the same manner as patents are
to be issued to subjects of China.

Article XI

Whereas the Government of the United States undertakes to give the benefits
of its copyright laws to the citizens of any foreign State which gives to the
citizens of the United States the benefits of copyright on an equal basis with
its own citizens : —

Therefore the Government of China, in order to secure such benefits in the
United States for its subjects, now agrees to give full protection, in the same way
and manner and subject to the same conditions upon which it agrees to protect

ANNEXES

423

trade-marks, to all citizens of the United States who are authors, designers or
proprietors of any book, map, print or engraving especially prepared for the
use and education of the Chinese people, or translation into Chinese of any
book, in the exclusive right to print and sell such book, map, print, engraving
or translation in the Empire of China during ten years from the date of
registration. With the exception of the books, maps, etc., specified above, which
may not be reprinted in the same form, no work shall be entitled to copyright
privileges under this article. It is understood that Chinese subjects shall be at
liberty to make, print and sell original translations into Chinese of any works
written or of maps compiled by a citizen of the United States. This article
shall not be held to protect against due process of law any citizen of the United
States or Chinese subject who may be author, proprietor, or seller of any publica-
tion calculated to injure the well-being of China.

Article XII

The Chinese Government having in 1898 opened the navigable inland waters
of the Empire to commerce by all steam vessels, native or foreign, that may be
specially registered for the purpose, for the conveyance of passengers and lawful
merchandise, citizens, firms, and corporations of the United States may engage
in such commerce on equal terms with those granted to subjects of any foreign
power.

In case either party hereto considers it advantageous at any time that the
rules and regulations then in existence for such commerce be altered or
amended, the Chinese Government agrees to consider amicably and to adopt
such modifications thereof as are found necessary for trade and for the benefit
of China.

The Chinese Government agrees that, upon the exchange of the ratifications of
this treaty, Mukden and Antung, both in the province of Sheng-king, will be
opened by China itself as places of international residence and trade. The selec-
tion of suitable localities to be set apart for international use and occupation
and the regulations for these places set apart for foreign residence and trade shall
be agreed upon by the Governments of the United States and China after con-
sultation together.

Article XIII

China agrees to take the necessary steps to provide for a uniform national coin-
age which shall be legal tender in payment of all duties, taxes, and other obliga-
tions throughout the Empire by the citizens of the United States as well as Chinese
subjects. It is understood, however, that all customs duties shall continue to be
calculated and paid on the basis of the Haikwan Tael.

Article XIV

The principles of the Christian religion, as professed by the Protestant and
Roman Catholic Churches, are recognized as teaching men to do good and to do
to others as they would have others do to them. Those who quietly profess and
teach these doctrines shall not be harassed or persecuted on account of their
faith. Any person, whether citizen of the United States or Chinese convert, who,
according to these tenets, peaceably teaches and practices the principles of
Christianity shall in no case be interfered with or molested therefor. No restric-
tions shall be placed on Chinese joining Christian churches. Converts and non-
converts, being Chinese subjects, shall alike conform to the laws of China ; and

844538 — 49 30

424

U. S. RELATIONS WITH CHINA

shall pay due respect to those in authority, living together in peace and amity ;
and the fact of being converts shall not protect them from the consequences of any
offense they may have committed before or may commit after their admission into
the church, or exempt them from paying legal taxes levied on Chinese subjects
generally, except taxes levied and contributions for the support of religious cus-
toms and practices contrary to their faith. Missionaries shall not interfere with
the exercise by the native authorities of their jurisdiction over Chinese subjects ;
nor shall the native authorities make any distinction between converts and non-
converts, but shall administer the laws without partiality, so that both classes
can live together in peace.

Missionary societies of the United States shall be permitted to rent and to lease
in perpetuity, as the property of such societies, buildings or lands in all parts of
the Empire for missionary purposes and, after the title deeds have been found in
order and duly stamped by the local authorities, to erect such suitable buildings
as may be required for carrying on their good work.

Article XV

The Government of China having expressed a strong desire to reform its judicial
system and to bring it into accord with that of Western nations, the United States
agrees to give every assistance to such reform and will also be prepared to relin-
quish extra-territorial rights when satisfied that the state of the Chinese laws,
the arrangements for their administration, and other considerations warrant it
in so doing.

Article XVI

The Government of the United States consents to the prohibition by the Gov-
ernment of China of the importation into China of morphia and of instruments
for its injection, excepting morphia and instruments for its injection imported
for medical purposes, on payment of tariff duty, and under regulations to be
framed by China which shall effectually restrict the use of such import to the said
purposes. This prohibition shall be uniformly applied to such importation from
all countries. The Chinese Government undertakes to adopt at once measures to
prevent the manufacture in China of morphia and of instruments for its injection.

Article XVII

It is agreed between the high contracting parties hereto that all the provisions
of the several treaties between the United States and China which were in force
on the first day of January, A. D. 1900, are continued in full force and effect except
in so far as they are modified by the present treaty or other treaties to which the
United States is a party.

The present treaty shall remain in force for a period of ten years, beginning
with the date of the exchange of ratifications and until a revision is effected as
hereinafter provided.

It is further agreed that either of the high contracting parties may demand that
the tariff and the articles of this convention be revised at the end of ten years
from the date of the exchange of the ratifications thereof. If no revision is
demanded before the end of the first term of ten years, then these articles in their
present form shall remain in full force for a further term of ten years reckoned
from the end of the first term, and so on for successive periods of ten years.

ANNEXES

425

The English and Chinese texts of the present Treaty and its three annexes have
been carefully compared ; but, in the event of there being any difference of mean-
ing between them, the sense as expressed in the English text shall be held to be
the correct one.

This Treaty and its three annexes shall be ratified by the two High Contracting
Parties in conformity with their respective constitutions, and the ratifications
shall be exchanged in Washington not later than twelve months from the pres-
ent date.

In testimony whereof, we, the undersigned, by virtue of our respective powers,
have signed this Treaty in duplicate in the English and Chinese languages, and
have affixed our respective seals.

Done at Shanghai, this eighth day of October in the year of our Lord one thou-
sand nine hundred and three, and in the twenty ninth year of Kuang Hsii eighth
month and eighteenth day.

Edwin H. Conger [seal.]
John Goodnow [seal.]

John F. Seaman [seal.1

Signatures and seal of Chinese Plenipotentiaries.

[Lti Hai-huan]

[Sheng Hsuan-huai]

Annex I

As citizens of the United States are already forbidden by treaty to deal in or
handle opium, no mention has been made in this Treaty of opium taxation.

As the trade in salt is a government monopoly in China, no mention has been
made in this Treaty of salt taxation.

It is, however, understood, after full discussion and consideration, that the
collection of inland dues on opium and salt and the means for the protection of
the revenue therefrom and for preventing illicit traffic therein are left to be
administered by the Chinese Government in such manner as shall in no wise
interfere with the provisions of Article IV of this treaty regarding the un-
obstructed transit of other goods.

Edwin H. Conger [seal.]
John Goodnow [seal.]

John F. Seaman [seal.]

Signatures and seal of Chinese Plenipotentiaries.

[Lti Hai-huan]

[Sheng Hsuan-huai]

Annex II

Article IV of the Treaty of Commerce between the United States and China
of this date provides for the retention of the native Customs offices at the open
ports. For the purpose of safeguarding the revenue of China at such places, it
is understood that the Chinese Government shall be entitled to establish and
maintain such branch native Customs offices at each open port, within a rea-
sonable distance of the main native Customs offices at the port, as shall be
deemed by the authorities of the Imperial Maritime Customs at that port neces-
sary to collect the revenue from the trade into and out of such port. Such
branches, as well as the main native Customs offices at each open port, shall be

426

U. S. RELATIONS WITH CHINA

administered by the Imperial Maritime Customs as provided by the Protocol
of 1901.

Edwin H. Conger
John Goodnow
John F. Seaman

Signatures and seal of Chinese Plenipotentiaries.
[Lti Hai-htjan]

[Sheng Hsuan-htjai]

[seal.]

[SEAL.]

[seal.]

Annex III

The schedule of tariff duties on imported goods annexed to this Treaty under
Article V is hereby mutually declared to be the schedule agreed upon between
the representatives of China and the United States and signed by John Goodnow
for the United States and Their Excellencies Lii Hai-huan and Sheng Hsiian-huai
for China at Shanghai on the sixth day of September, A. D. 1902, according to
the Protocol of the seventh day of September, A. D. 1901. -

Edwin H. Conger [seal.]
John Goodnow [seal.]

John F. Seaman [seal.]

Signatures and seal of Chinese Plenipotentiaries.

[Lu Hai-huan]

[Sheng Hsuan-huai]

7

Secretary Ray to American Diplomatic Representatives at Peking ,
St. Petersburg , and Tokyo 10

Washington, February 10 , 1904

You will express to the minister of foreign affairs the earnest desire of the
Government of the United States that in the course of the military operations
which have begun between Russia and Japan the neutrality of China and in all
practicable ways her administrative entity shall be respected by both parties, and
that the area of hostility shall be localized and limited as much as possible, so
that undue excitement and disturbance of the Chinese people may be prevented
and the least possible loss to the commerce and peaceful intercourse of the world
may be occasioned.

Secretary Hay to American Diplomatic Representatives at Vienna ,
Brussels , Paris , Berlin , London , Rome , and Lisbon * 11

Washington, January IS , 1905

It has come to our knowledge that apprehension exists on the part of some
of the powers that in the eventual negotiations for peace between Russia and
Japan claim may be made for the concession of Chinese territory to neutral

10 Ibid ., 1904, p. 2.

11 Ibid ., 1905, p. 1.

ANNEXES

427

powers. The President would be loath to share this apprehension, believing
that the introduction of extraneous interests would seriously embarrass and
postpone the settlement of the issues involved in the present contest in the Far
East, thus making more remote the attainment of that peace which is so
earnestly to be desired. For its part, the United States has repeatedly made its
position well known, and has been gratified at the cordial welcome accorded to its
efforts to strengthen and perpetuate the broad policy of maintaining the integrity
of China and the “open door” in the Orient whereby equality of commercial op-
portunity and access shall be enjoyed by all nations. Holding these views the
United States disclaims any thought of reserved territorial rights or control in
the Chinese Empire, and it is deemed fitting to make this purpose frankly known
and to remove all apprehension on this score so far as concerns the policy of this
nation, which maintains so considerable a share of the Pacific commerce of
China and which holds such important possessions in the western Pacific,
almost at the gateway of China.

You will bring this matter to the notice of the government to which you are
accredited, and you will invite the expression of its views thereon.

Root-Takahira Agreement, November 30, 1908

The J apanese Ambassador (Tdkahvra) to Secretary Root 12

Washington , 'November 30, 1908.

Sir: The exchange of views between us, which has taken place at the several
interviews which I have recently had the honor of holding with you, has shown
that Japan and the United States holding important outlying insular possessions
in the region of the Pacific Ocean, the Governments of the two countries are
animated by a common aim, policy, and intention in that region.

Believing that a frank avowal of that aim, policy, and intention would not
only tend to strengthen the relations of friendship and good neighborhood, which
have immemorially existed between Japan and the United States, but would
materially contribute to the preservation of the general peace, the Imperial
Government have authorized me to present to you an outline of their under-
standing of that common aim, policy, and intention :

1. It is the wish of the two Governments to encourage the free and peaceful
development of their commerce on the Pacific Ocean.

2. The policy of both Governments, uninfluenced by any aggressive tendencies,
is directed to the maintenance of the existing status quo in the region above
mentioned and to the defense of the principle of equal opportunity for commerce
and industry in China.

8. They are accordingly firmly resolved reciprocally to respect the territorial
possessions belonging to each other in said region.

4. They are also determined to preserve the common interest of all powers in
China by supporting by all pacific means at their disposal the independence and
integrity of China and the principle of equal opportunity for commerce and
industry of all nations in that Empire.

5. Should any event occur threatening the status quo as above described or
the principle of equal opportunity as above defined, it remains for the two

“ Ibid., 1908, p. 510.

428

U. S. RELATIONS WITH CHINA

Governments to communicate with each other in order to arrive at an under-
standing as to what measures they may consider it useful to take.

If the foregoing outline accords with the view of the Government of the
United States, I shall be gratified to receive your confirmation.

I take {etc.] K. Takahira.

Secretary Root to the Japanese Ambassador ( Takahira ) 13

Washington , November SO , 1908.

Excellency : I have the honor to acknowledge the receipt of your note of to-day
setting forth the result of the exchange of views between us in our recent inter-
views defining the understanding of the two Governments in regard to their policy
in the region of the Pacific Ocean.

It is a pleasure to inform you that this expression of mutual understanding is
welcome to the Government of the United States as appropriate to the happy
relations of the two countries and as the occasion for a concise mutual affirma-
tion of that accordant policy respecting the Far East which the two Governments
have so frequently declared in the past.

I am happy to be able to confirm to your excellency, on behalf of the United
States, the declaration of the two Governments embodied in the following words :

1. It is the wish of the two Governments to encourage the free and peaceful
development of their commerce on the Pacific Ocean.

2. The policy of both Governments, uninfluenced by any aggressive tendencies,
is directed to the maintenance of the existing status quo in the region above
mentioned, and to the defense of the principle of equal opportunity for commerce
and industry in China.

3. They are accordingly firmly resolved reciprocally to respect the territorial
possessions belonging to each other in said region.

4. They are also determined to preserve the common interests of all powers
in China by supporting by all pacific means at their disposal the independence
and integrity of China and the principle of equal opportunity for commerce and
industry of all nations in that Empire.

5. Should any event occur threatening the status quo as above described or the
principle of equal opportunity as above defined, it remains for the two Govern-
ments to communicate with each other in order to arrive at an understanding
as to what measures they may consider it useful to take.

Accept [etc.] Elihtj Root.

10

Memorandum by Secretary Knox on the Neutralization of the
Manchurian Railways 14

Now that there has been signed and ratified by an unpublished imperial decree
an agreement by which American and British interests are to cooperate in the
financing and construction of the Chin Chou Tsitsihar Aigun Railroad, the

13 Ibid. 1908, p. 511.

1A Ibid., 1910, p. 234. The Ambassador at London was instructed, on Nov. 6, 1909, to de-
liver the memorandum to the British Government. On Dec. 14, 1909, the American
Diplomatic Representatives at Paris, Berlin, St. Petersburg, Tokyo, and Peking were in-
structed to present this proposal to the respective governments to which they were
accredited.

ANNEXES

429

Government of the United States is prepared cordially to cooperate with the
British Government in diplomatically supporting and facilitating this, so im-
portant alike to the progress and the commercial development of China.

The Government of the United States would be disposed to favor ultimate
participation to a proper extent on the part of other interested powers whose
inclusion might be agreeable to China and which are known to support the prin-
ciple of equality of commercial opportunity and the maintenance of the integrity
of the Chinese Empire.

However, before the further elaboration of the actual arrangement the Gov-
ernment of the United States asks the British Government to give their consid-
eration to the following alternative and more comprehensive projects :

1. Perhaps the most effective way to preserve the undisturbed enjoyment by
China of all political rights in Manchuria and to promote the development of
those Provinces under a practical application of the policy of the open door and
equal commercial opportunity would be to bring the Manchurian highways and
the railroad under an economic and scientific and impartial administration by
some plan vesting in China the ownership of the railroads through funds fur-
nished for that purpose by the interested* powers willing to participate. Such
loan should be for a period ample to make it reasonably certain that it could
be met within the time fixed, and should be upon such terms as would make
it attractive to bankers and investors. The plan should provide that nationals
of the participating powers should supervise the railroad system during the
term of the loan, and the Governments concerned should enjoy for such period
the usual preferences for their nationals and materials upon an equitable basis
inter se.

The execution of such a plan would naturally require the cooperation of
China and of Japan and Russia, the reversionary and the concessionaries, re-
spectively, of the existing Manchurian railroads, as well as that of Great Brit-
ain and the United States, whose special interests rest upon the existing con-
tract relative to the Chin Chou Aigun Railroad.

The advantages of such a plan to Japan and to Russia are obvious. Both
those powers, desiring in good faith to protect the policy of the open door and
equal opportunity in Manchuria, and wishing to assure to China unimpaired
sovereignty, might well be expected to welcome an opportunity to shift the
separate duties, responsibilities, and expenses they have undertaken in the pro-
tection of their respective commercial and other interests for impartial assump-
tion by the combined powers, including themselves, in proportion to their inter-
ests. The Government of the United States has some reason to hope that such
a plan might meet favorable consideration on the part of Russia, and has reason
to believe that American financial participation would be forthcoming.

2. Should this suggestion not be found feasible in its entirety, then the desired
end would be approximated if not attained by Great Britain and the United
States diplomatically supporting the Chin Chou Aigun arrangement and inviting
interested powers friendly to the complete commercial neutrality of Manchuria
to participate in the financing and construction of that line and of such additional
lines as future commercial development may demand, and at the same time
to supply funds for the purchase by China of such of the existing lines as might
be offered for inclusion in this system.

The Government of the United States hopes that the principle involved in
the foregoing suggestions may commend itself to His Britannic Majesty’s Gov-
ernment. That principle finds support in the additional reasons that the
consummation of some such plan would avoid the irritations likely to be engen-

430

U. S. RELATIONS WITH CHINA

dered by the uncontrolled direct negotiations of bankers with the Chinese Gov-
ernment, and also that it would create such community of substantial interest
in China as would facilitate a cooperation calculated to simplify the problems,
fiscal and monetary — reforms now receiving such earnest attention by the
Imperial Chinese Government.

11

Secretary Bryan to the Japanese Ambassador ( Viscount Chanda) 1 *

Washington, March 13, 1915

Excellency : On February 8 last your excellency left with me at the Depart-
ment a memorandum setting forth the demands which the Imperial Japanese
Government felt obliged to make upon China, and on the 22d day of the same
month your excellency delivered to me an additional memorandum presenting
certain “requests” affecting the relations between the two countries which the
Imperial Government has urged China to consider.

The American Government is glad to learn from these two communications of
the Imperial Government that the “requests” were not presented to China as
“demands” but that they were but “wishes” for which “friendly consideration”
was asked on the part of China. The American Government understands from
this distinction between the “demands” and the “requests” that the latter are
not to be pressed if the Chinese Government should decline to consider them.

Inasmuch as these requests appear to have a bearing upon the traditional
attitude of both the United States and Japan towards China, I desire to present
to your excellency the following considerations of the Government of the United
States relative to the effect which, it is thought, these demands and requests may
have upon the relations of the United States with the Chinese Republic.

Reciprocating the frank and friendly character of the statements of the
Imperial Japanese Government, the Government of the United States of America
believes that an expression of its views with respect to these matters will be
received by the Imperial Government in the same friendly spirit in which it
is offered.

It will be recalled that in the year 1899 the Government of the United States
requested the Governments of France, Germany, Great Britain, Italy, Russia
and Japan to give their formal consent to three proposals :

First. They will in no way interfere with any treaty port or any vested in-
terest within any so-called “sphere of interest” or leased territory they may
have in China.

Second. The Chinese treaty tariff of the time being shall apply to all mer-
chandise landed or shipped to all such ports as are within said “sphere of in-
terest” (unless they be “free ports”), no matter to what nationality it may
belong, and that duties so leviable shall be collected by the Chinese Government.

Third. They will levy no higher harbor dues on vessels of another nationality
frequenting any port in such “sphere” than shall be levied on vessels of their
own nationality, and no higher railroad charges over lines built, controlled,
or operated within such “sphere” on merchandise belonging to citizens or
subjects of other nationalities transported through such “sphere” than shall
be levied on similar merchandise belonging to their own nationals transported
over equal distances.

“ JWd., 1915, p. 105.

ANNEXES

431

On December 26, 1899, the Minister for Foreign Affairs addressed a note to the
American Minister at Tokyo assuring the Minister—

that the Imperial Government will have no hesitation to give their assent to
so just and fair a proposal of the United States, provided that all the other
Powers concerned shall accept the same.

A similar acceptance was given on behalf of the other Powers approached.

On July 3, 1900, having been consulted by other Powers as to the course to be
pursued in China as a result of the Boxer disturbances, this Government
expressed its views in a circular communication to Austria-Hungary, France,
Germany, Great Britain, Italy, Japan and Russia, stating that

the policy of the Government of the United States is to seek a solution which
may bring about permanent safety and peace to China, preserve Chinese terri-
torial and administrative entity, protect all rights guaranteed to friendly
Powers by treaty and international law, and safeguard for the world the prin-
ciple of equal and impartial trade with all parts of the Chinese Empire.

In reply the Minister for Foreign Affairs of the Imperial Government expressed
through the American Minister at Tokyo views in accord with those of the United
States Government.

In the following month Great Britain and Germany signed an agreement de-
fining their mutual policy in China :

I. It is a matter of joint and permanent international interest that the ports
on the rivers and littoral of China should remain free and open to trade and
to every other legitimate form of economic activity for the nationals of all
countries without distinction, and the two Governments agree on their part to
uphold the same for all Chinese territory so far as they can exercise influence.

II. Her Britannic Majesty’s Government and the Imperial German Govern-
ment will not on their part make use of the present complication to obtain for
themselves any territorial advantages in Chinese dominions and will direct their
policy towards maintaining undiminished the territorial conditions of the Chi-
nese Empire.

This agreement being communicated by those Powers to Japan was acknowl-
edged by the Imperial Government in a note containing the following language :

The Imperial Government having been assured by the contracting Powers
that in adhering to the agreement in question they would be placed in relation
to it in the same position as if they had been a signatory thereto, do not hesi-
tate to declare formally their adherence to the said agreement and their accept-
ance of the principles embodied therein.

In 1901, when the Manchurian Convention was being negotiated by the
Russian and Chinese Governments, involving the grant of certain exclusive
privileges relating to the opening of mines and the building of railroads in
Manchuria, the Japanese Minister called on the Secretary of State of the United
States and said that the Japanese Government considered that the convention
was a most undesirable thing because it was a violation of the understanding
among all the Powers that the integrity of the Chinese Empire should be preserved,
and that the Japanese Government was anxious that some means should be taken
by the different Powers to induce China to delay the final signature of the con-
vention beyond the period assigned by Russia as an ultimatum for signing.

432

U. S. RELATIONS WITH CHINA

On the same subject a circular note was sent by the United States to Belgium,
China, France, Germany, Great Britain, Italy, Japan, the Netherlands, Russia
and Spain, as follows :

An agreement by which China cedes to any corporation or company the ex-
clusive right and privilege of opening mines, establishing railroads, or in any
other way industrially developing Manchuria, can but be viewed with the grav-
est concern by the Government of the United States. It constitutes a monopoly,
which is a distinct breach of the stipulations of treaties concluded between
China and foreign Powers, and thereby seriously affects the rights of American
citizens ; it restricts their rightful trade and exposes it to being discriminated
against, interfered with or otherwise jeopardized, and strongly tends towards
permanently impairing the sovereign rights of China in this part of the Em-
pire, and seriously interferes with her ability to meet her international obliga-
tions. Furthermore, such concession on the part of China will undoubtedly
be followed by demands from other Powers for similar and equally exclusive
advantages in other parts of the Chinese Empire, and the inevitable result
must be the complete wreck of the policy of absolute equality of treatment
of all nations in regard to trade, navigation, and commerce within the con-
fines of the Empire.

On the other hand, the attainment by one Power of such exclusive privileges
for a commercial organization of its nationality conflicts with the assurances
repeatedly conveyed to this Government by the Imperial Russian Ministry of
Foreign Affairs of the Imperial Government’s intention to follow the policy
of the open door in China, as advocated by the Government of the United
States and accepted by all the Treaty Powers having commercial interests in
that Empire.

It is for these reasons that the Government of the United States, animated
now, as in the past, with the sincerest desire of insuring to the whole world
the benefits of full and fair intercourse between China and the nations on a
footing of equal rights and advantages to all, submits the above to the earnest
consideration of the Imperial Governments of China and Russia, confident that
they will give due weight to its importance and adopt such measures as will
relieve the just and natural anxiety of the United States.

The foregoing constitute the beginnings of the policy of the United States
and other Powers interested in the welfare of China for the maintenance of the
territorial integrity and administrative entity of China, and equal opportunities
in commerce and industries in her behalf. To this policy the Powers have gen-
erally given their formal acceptance and support.

It is only necessary to refer to the British-Japanese Treaty of 1902, the Jap-
anese Declarations at the opening of the Russo-Japanese war, the British-
Japanese Treaty of 1905, the Russo-Japanese Treaty of Portsmouth, of 1905, the
Franco- Japanese Entente of 1907, and the Russo-Japanese Treaty of 1907, in
which Japan confirmed her special interest in maintaining the political independ-
ence and territorial integrity of the Empire of China, and in securing equal
opportunities to all nations in the commercial and industrial development of
China.

Finally, the United States and Japan declared their policy in the Far East
by an exchange of notes on November 30, 1908, between the Honorable Elihu Root,
then Secretary of State, and Baron Kogoro Takahira, the Ambassador of Japan.
These notes contain the following language :

ANNEXES

433

4. They are also determined to preserve the common interest of all Powers
in China by supporting by all pacific means at their disposal the independence
and integrity of China and the principle of equal opportunity for commerce and
industry of all nations in that Empire.

5. Should any event occur threatening the status quo as above described or
the principle of equal opportunity as above defined, it remains for the two
Governments to communicate with each other in order to arrive at an under-
standing as to what measures they may consider useful to take.

I assume that it is because they wish to act in the spirit of this agreement to
communicate with each other in reference to any event which may threaten these
principles that your excellency’s Government has informed this Government of
the above-mentioned proposals which have been made to China. It is with the
same purpose also, and on the further ground that the .United States feels itself
under a moral obligation to the Powers whose pledges are deposited with it not
to pass over in silence any threatened violation of these pledges, that I address
this communication to you with a view to carrying out the agreement of 1908
in accordance with that mutual regard and friendship which inspired it.

The United States, confident that the principle of mutuality will be preserved
by Japan, believes that it may rely upon the often repeated assurances of your
excellency’s Government relative to the independence, integrity and commerce
of China, and that no steps will be taken contrary to the spirit of those as-
surances.

For two generations American missionaries and teachers have made sacrifices
in behalf of religious and educational work in China. American capital has
been invested and industries have been established in certain regions. The
activity of Americans has never been political, but on the contrary has been
primarily commercial with no afterthought as to their effect upon the govern-
mental policy of China. As an outgrowth of these two interests Americans have
become concerned in the legitimate participation in the economic development
of China along broader lines. Many projects which in other countries are left
to private enterprise are in China conducted necessarily under government
direction. United States citizens and capital are thus engaged in certain public
improvements, such as the Huai River conservancy, the Hukuang Railway project,
etc. A fourth matter of great moment to the United States is its broad and
extensive treaty rights with China. These in general relate to commercial
privileges and to the protection of Americans in China. In view of these treaty
rights and its increasing economic interests in China, this Government has noted
with grave concern certain of the suggestions which Japan has, in the present
critical stage of the growth and development of the new Republic, considered it
advisable to lay before the Chinese Government. While on principle and under
the treaties of 1844, 1858, 1868 and 1903 with China the United States has ground
upon which to base objections to the Japanese “demands” relative to Shantung,
South Manchuria, and East Mongolia, nevertheless the United States frankly
recognizes that territorial contiguity creates special relations between Japan and
these districts. This Government, therefore, is disposed to raise no question,
at this time, as to Articles I and II of the Japanese proposals. Further, as to
Article IV, and Article V, paragraphs 2, 5 and 7, this Government perceives no
special menace to the existing rights and interests of the United States or of its
citizens in China. On the other hand Article V, paragraph 4, restricting the pur-
chase of arms and ammunition to purchases from Japan, and paragraph 6 con-
templating a monopoly of the development of the province of Fukien, the United
States Government considers, would, if they should become operative, be viola-

434

U. S. RELATIONS WITH CHINA

tions of the principle of equal opportunity for the commerce and industries of
other nations. American citizens may claim a right to share in the commercial
development not only in Fukien but in other provinces as well. The United
States is not unmindful that many serious disadvantages would result to its
commercial and industrial enterprises if special preference is given to one nation
in the matter of concessions. An example is shown in the operation of the
South Manchuria Railway whereby discriminations have been made for some
time against freight brought into Manchuria in other than Japanese vessels.
This case indicates the embarrassing results of concessions of a broad preference
or option. The United States, as well as every other nation, has the right to
have its citizens free to make contracts with the Central and Provincial Gov-
ernments without having the exercise of their rights interrupted or regarded
as unfriendly by a third power ; for each American enterprise in China is treated
on its own merits as to its usefulness and prospective benefit, and without any
regard to the possible effect it might have on China’s future political status in
the Orient.

The rights and privileges, which are set forth in these two paragraphs and
which Japan seeks to obtain from China, are in conflict with rights of Americans
secured by treaties between the United States and China.

Article XV of the Treaty of 1844 reads as follows :

The former limitation of the trade of foreign nations to certain persons
appointed at Canton by the Government and commonly called Hong-merchants,
having been abolished, citizens of the United States, engaged in the purchase
or sale of goods of import or export, are admitted to trade with any and all
subjects of China without distinction ; they shall not be subject to any new
limitations, nor impeded in their business by monopolies or other injurious
restrictions.

Article XXX of the Treaty of 1858 reads as follows :

The contracting parties hereby agree that should at any time the Ta Tsing
Empire grant to any nation or the merchants or citizens of any nation, any
right, privilege or favor, connected either with navigation, commerce, political
or other intercourse which is not conferred by this treaty, such right, privilege
and favor shall at once freely enure to the benefit of the United States, its
public officers, merchants and citizens.

Article VIII of the Treaty of 1868 reads as follows :

The United States, always disclaiming and discouraging all practices of
unnecessary dictation and intervention by one nation in the affairs or domestic
administration of another, do hereby freely disclaim and disavow any intention
or right to intervene in the domestic administration of China in regard to the
construction of railroads, telegraphs or other material internal improvements.
On the other hand, his Majesty, the Emperor of China, reserves to himself the
right to decide the time and manner and circumstances of introducing such
improvements within his dominions. With this mutual understanding it is
agreed by the contracting parties that if at any time hereafter his Imperial Maj-
esty shall determine to construct or cause to be constructed works of the char-
acter mentioned within the empire, and shall make application to the United
States or any other western Power for facilities to carry out that policy, the
United States will, in that case, designate and authorize suitable engineers to be
employed by the Chinese Government, and will recommend to other nations
an equal compliance with such application, the Chinese Government in that case

ANNEXES 435

protecting such engineers in their persons and property, and paying them a
reasonable compensation for their service.

Articles III and VII of the Treaty of 1903 read as follows :

Article III. Citizens of the United States may frequent, reside and carry
on trade, industries and manufactures, or pursue any lawful avocation, in all
the ports or localities of China which are now open or may hereafter be
opened to foreign residence and trade ; and within the suitable localities at
those places which have been or may be set apart for the use and occupation
of foreigners, they may rent or purchase houses, places of business and other
buildings, and rent or lease in perpetuity land and build thereon. They shall
generally enjoy as to their persons and property all such rights, privileges and
immunities as are or may hereafter be granted to the subjects or citizens of
the nation the most favored in these respects.

Article VII. The Chinese Government, recognizing that it is advantageous
for the country to develop its mineral resources, and that it is desirable to
attract foreign as well as Chinese capital to embark in mining enterprises,
agrees, within one year from the signing of this treaty, to initiate and conclude
the revision of the existing mining regulations. To this end China will, with
all expedition and earnestness, go into the whole question of mining rules;
and, selecting from the rules of the United States and other countries regula-
tions which seem applicable to the condition of China, will recast its present
mining rules in such a way as, while promoting the interests of Chinese sub-
jects and not injuring in any way the sovereign rights of China, will offer no
impediment to the attraction of foreign capital nor place foreign capitalists
at a greater disadvantage than they would be under generally accepted for-
eign regulations ; and will permit citizens of the United States to carry on in
Chinese territory mining operations and other necessary business relating
thereto provided they comply with the new regulations and conditions which
will be imposed by China on its subjects and foreigners alike, relating to the
opening of mines, the renting of mineral land, and the payment of royalty,
and provided they apply for permits, the provisions of which in regard to
necessary business relating to such operations shall be observed. The resi-
dence of citizens of the United States in connection with such mining opera-
tions shall be subject to such regulations as shall be agreed upon by and between
the United States and China.

Any mining concessions granted after the publication of such new rules shall
be subject to their provisions.

It is manifest that these articles including “most favored nation’’ treatment en-
title Americans to claim from China the same rights as those which Japan now
seeks to have granted exclusively to her subjects.

It remains to call attention to Article III forbidding the alienation or lease of
any port, harbor or island on the coast of China, and to Article V, paragraph 1,
requiring China to employ competent Japanese subjects as advisers for conduct-
ing administrative, financial and military affairs, and paragraph 3 suggesting the
joint policing of China, “where it is deemed necessary.”

With reference to the first of these three proposals, Baron Kato has explained
to the American Ambassador at Tokyo that Japan has no desire for a naval sta-
tion on the coast of China, either at Tsingtau, or south of that point, as it would
be valueless to her, but that it would however object to another nation having
such a station. With reference to the employment of advisers the United States
believes it may be assumed that the Chinese Government will not discriminate

436

U. S. RELATIONS WITH CHINA

unfairly in their selection, although it should be pointed out that this Government
understands that Japan has six out of twenty -five advisers to the Republic repre-
senting eight nations. In respect to the proposed joint policing of certain places
where there has been some friction between Japanese and Chinese, this Govern-
ment feels apprehensive that this plan, instead of tending to lessen such friction
might create greater difficulties than those which it is desired to remove.

But what is more important is the fact that these proposals, if accepted by
China, while not infringing the territorial integrity of the Republic, are clearly
derogatory to the political independence and administrative entity of that coun-
try. The same is in a measure true of Paragraph 4 of Article V relative to the
purchase of arms. It is difficult for the United States, therefore, to reconcile
these requests with the maintenance of the unimpaired sovereignty of China,
which Japan, together with the United States and the Great Powers of Europe,
has reaffirmed from time to time during the past decade and a half in formal
declarations, treaties and exchanges of diplomatic notes. The United States,
therefore, could not regard with indifference the assumption of political, military
or economic domination over China by a foreign Power, and hopes that your ex-
cellency’s Government will find it consonant with their interests to refrain from
pressing upon China an acceptance of proposals which would, if accepted, exclude
Americans from equal participation in the economic and industrial development
of China and would limit the political independence of that country.

The United States is convinced that an attempt to coerce China to submit to
these proposals would result in engendering resentment on the part of the Chinese
and opposition by other interested Powers, thereby creating a situation which
this Government confidently believes the Imperial Government do not desire.

The United States Government embraces this opportunity to make known that
it has viewed the aspirations of Japan in the Far East with that friendship and
esteem which have characterized the relations of the two nations in the past.
This Government cannot too earnestly impress upon your excellency’s Govern-
ment that the United States is not jealous of the prominence of Japan in the
East or of the intimate cooperation of China and Japan for their mutual benefit.
Nor has the United States any intention of obstructing or embarrassing Japan,
or of influencing China in opposition to Japan. On the contrary the policy of
the United States, as set forth in this note,. is directed to the maintenance of
the independence, integrity and commercial freedom of China and the preserva-
tion of legitimate American rights and interests in that Republic.

Accept [etc.] W. J. Bbyan.

12

Secretary Bryan to the Ambassador in Japan ( Guthrie ) 16

Washington, May 11 , 1915 — 5 p. m.

Please call upon the Minister for Foreign Affairs and present to him a note
textually as follows :

“In view of the circumstances of the negotiations which have taken place and
which are now pending between the Government of Japan and the Government
of China, and of the agreements which have been reached as a result thereof,
the Government of the United States has the honor to notify the Imperial Japa-
nese Government that it cannot recognize any agreement or undertaking which

18 Ibid., 1915, p. 146.

ANNEXES

437

has been entered into or which may be entered into between the Governments of
Japan and China, impairing the treaty rights of the United States and its citizens
in China, the political or territorial integrity of the Republic of China, or the
international policy relative to China commonly known as the open door policy.

“An identical note has been transmitted to the Government of the Chinese
Republic.’* Bbyan.

13

Lansing-Ishii Agreement, November 2, 1917

Secretary Lansing to Viscount Ishii , J apanese Ambassador on
Special Mission 17

Washington, November 2 , 1917.

Excellency: I have the honor to communicate herein my understanding of
the agreement reached by us in our recent conversations touching the questions
of mutual interest to our Governments relating to the Republic of China.

In order to silence mischievous reports that have from time to time been cir-
culated, it is believed by us that a public announcement once more of the desires
and intentions shared by our two Governments with regard to China is advisible.

The Governments of the United States and Japan recognize that territorial
propinquity creates special relations between countries, and, consequently, the
Government of the United States recognizes that Japan has special interests in
China, particularly in the part to which her possessions are contiguous.

The territorial sovereignty of China, nevertheless, remains unimpaired and
the Government of the United States has every confidence in the repeated as-
surances of the Imperial Japanese Government that while geographical position
gives Japan such special interests they have no desire to discriminate against the
trade of other nations or to disregard the commercial rights heretofore granted
by China in treaties with other powers.

The Governments of the United States and Japan deny that they have any
purpose to infringe in any way the independence or territorial integrity of China
and they declare, furthermore, that they always adhere to the principle of the
so-called “open door” or equal opportunity for commerce and industry in China.

Moreover, they mutually declare that they are opposed to the acquisition by
any Government of any special rights or privileges that would affect the in-
dependence or territorial integrity of China or that would deny to the subjects
or citizens of any country the full enjoyment of equal opportunity in the com-
merce and industry of China.

I shall be glad to have your excellency confirm this understanding of the
agreement reached by us.

Accept [etc.] Robert Lansing.

Viscount Ishii , Japanese Ambassador on Special Mission, to
Secretary Lansing 18

Washington, November 2, 1917.

Sir : I have the honor to acknowledge the receipt of your note of to-day, com-
municating to me your understanding of the agreement reached by us in our

17 Ibid., 1917, p. 264.
™ Ibid.

438

TJ. S. RELATIONS WITH CHINA

recent conversations touching the questions of mutual interest to our Govern-
ments relating to the Republic of China.

I am happy to be able to confirm to you, under authorization of my Govern-
ment, the understanding in question set forth in the following terms :

In order to silence mischievous reports that have from time to time been
circulated, it is believed by us that a public announcement once more of the
desires and intentions shared by our two Governments with regard to China
is advisable.

The Governments of Japan and the United States recognize that territorial
propinquity creates special relations between countries, and, consequently, the
Government of the United States recognizes that Japan has special interests
in China, particularly in the part to which her possessions are contiguous.

The territorial sovereignty of China, nevertheless, remains unimpaired and
the Government of the United States has every confidence in the repeated
assurances of the Imperial Japanese Government that while geographical position
gives Japan such special interests they have no desire to discriminate against
the trade of other nations or to disregard the commercial rights heretofore
granted by China in treaties with other Powers.

The Governments of Japan and the United States deny that they have any
purpose to infringe in any way the independence or territorial integrity of China
and they declare, furthermore, that they always adhere to the principle of the
so-called “open door” or equal opportunity for commerce and industry in China.

Moreover, they mutually declare that they are opposed to the acquisition by
any government of any special rights or privileges that would affect the in-
dependence or territorial integrity of China or that would deny to the subjects or
citizens of any country the full enjoyment of equal opportunity in the commerce
and industry of China.

I take [etc.] K. Ishu

14

Nine-Power Treaty Signed at Washington , February 6 , 1922 19

The United States of America, Belgium, the British Empire, China, France,
Italy, Japan, the Netherlands and Portugal :

Desiring to adopt a policy designed to stabilize conditions in the Far East, to
safeguard the rights and interests of China, and to promote intercourse between
China and the other Powers upon the basis of equality of opportunity ;

Have resolved to conclude a treaty for that purpose and to that end have
appointed as their respective Plenipotentiaries ;

The President of the United States of America:

Charles Evans Hughes,

Henry Cabot Lodge,

Oscar W. Underwood,

Elihu Root,

citizens of the United States ;

His Majesty the King of the Belgians:

Baron de Cartier de Marchienne, Commander of the Order of Leopold and
of the Order of the Crown, His Ambassador Extraordinary and Pleni-
potentiary at Washington ;

1922, vol. I, p. 276.

ANNEXES 439

His Majesty the King of the United Kingdom of Great Britain and Ireland and
of the British Dominions beyond the Seas , Emperor of India:

The Right Honourable Arthur James Balfour, O. M., M. P., Lord President of
His Privy Council ;

The Right Honourable Baron Lee of Fareham, G. B. E., K. C. B., First Lord of
His Admiralty ;

The Right Honourable Sir Auckland Campbell Geddes, K. C. B., His Ambas-
sador Extraordinary and Plenipotentiary to the United States of America ;

and

for the Dominion of Canada:

The Right Honourable Sir Robert Laird Borden, G. C. M. G., K. C. ;
for the Commonwealth of Australia:

Senator the Right Honourable George Foster Pearce, Minister for Home
and Territories ;

for the Dominion of New Zealand:

The Honourable Sir John William Salmond, K. C., Judge of the Supreme
Court of New Zealand ;
for the Union of South Africa:

The Right Honourable Arthur James Balfour, O. M., M. P. ;
for India:

The Right Honourable Valingman Sankaranarayana Srinivasa Sastri, Mem-
ber of the Indian Council of State ;

The President of the Republic of China:

Mr. Sao-Ke Alfred Sze, Envoy Extraordinary and Minister Plenipotentiary
at Washington ;

Mr. V. K. Wellington Koo, Envoy Extraordinary and Minister Plenipotentiary
at London ;

Mr. Chung-Hui Wang, former Minister of Justice.

The President of the French Republic:

Mr. Albert Sarraut, Deputy, Minister of the Colonies ;

Mr. Jules J. Jusserand, Ambassador Extraordinary and Plenipotentiary to
the United States of America, Grand Cross of the National Order of the
Legion of Honour ;

His Majesty the King of Italy:

The Honourable Carlo Schanzer, Senator of the Kingdom ;

The Honourable Vittorio Rolandi Ricci, Senator of the Kingdom, His Am-
bassador Extraordinary and Plenipotentiary at Washington ;

The Honourable Luigi Albertini, Senator of the Kingdom ;

His Majesty the Emperor of Japan:

Baron Tomosaburo Kato, Minister for the Navy, Junii, a member of the
First Class of the Imperial Order of the Grand Cordon of the Rising Sun
with the Paulownia Flower;

Baron Kijuro Shidehara, His Ambassador Extraordinary and Plenipotentiary
at Washington, Joshii, a member of the First Class of the Imperial Order
of the Rising Sun ;

Mr. Masanao Hanihara, Vice Minister for Foreign Affairs, Jushii, a member
of the Second Class of the Imperial Order of the Rising Sun ;

Her Majesty the Queen of The Netherlands:

Jonkheer Frans Beelaerts van Blokland, Her Envoy Extraordinary and Min-
ister Plenipotentiary;

844538—49 31

440

U. S. RELATIONS WITH CHINA

Jonkheer Willem Hendrik de Beaufort, Minister Plenipotentiary, Charge
d’Affaires at Washington;

The President of the Portuguese Republic:

Mr. Jose Francisco de Horta Machado da Franca, Viscount d’Alte, Envoy
Extraordinary and Minister Plenipotentiary at Washington;

Mr. Ernesto Julio de Carvalho e Vasconcellos, Captain of the Portuguese
Navy, Technical Director of the Colonial Office.

Who, having communicated to each other their full powers, found to be in
good and due form, have agreed as follows :

Article I

The Contracting Powers, other than China, agree :

(1) To respect the sovereignty, the independence, and the territorial and
administrative integrity of China;

(2) To provide the fullest and most unembarrassed opportunity to China to
develop and maintain for herself an effective and stable government ;

(3) To use their influence for the purpose of effectually establishing and main-
taining the principle of equal opportunity for the commerce and industry of all
nations throughout the territory of China;

(4) To refrain from taking advantage of conditions in China in order to seek
special rights or privileges which would abridge the rights of subjects or citizens
of friendly States, and from countenancing action inimical to the security of
such States.

Article II

The Contracting Powers agree not to enter into any treaty, agreement, arrange-
ment, or understanding, either with one another, or, individually or collectively,
with any Power or Powers, which would infringe or impair the principles stated
in Article I.

Article III

With a view to applying more effectually the principles of the Open Door or
equality of opportunity in China for the trade and industry of all nations, the
Contracting Powers, other than China, agree that they will not seek, nor support
their respective nationals in seeking —

(a) any arrangement which might purport to establish in favour of their
interests any general superiority of rights with respect to commercial or economic
development in any designated region of China ;

(b) any such monopoly or preference as would deprive the nationals of any
other Power of the right of undertaking any legitimate trade or industry in
China, or of participating with the Chinese Government, or with any local
authority, in any category of public enterprise, or which by reason of its scope,
duration or geographical extent is calculated to frustrate the practical application
of the principle of equal opportunity.

It is understood that the foregoing stipulations of this Article are not to be
so construed as to prohibit the acquisition of such properties or rights as may
be necessary to the conduct of a particular commercial, industrial, or financial
undertaking or to the encouragement of invention and research.

China undertakes to be guided by the principles stated in the foregoing
stipulations of this Article in dealing with applications for economic rights and
privileges from Governments and nationals of all foreign countries, whether
parties to the present Treaty or not.

ANNEXES

441

Article TV

The Contracting Powers agree not to support any agreements by their respec-
tive nationals with each other designed to create Spheres of Influence or to
provide for the enjoyment of mutually exclusive opportunities in designated
parts of Chinese territory.

Article V

China agrees that, throughout the whole of the railways in China, she will
not exercise or permit unfair discrimination of any kind. In particular there
shall be no discrimination whatever, direct or indirect, in respect of charges or of
facilities on the ground of the nationality of passengers or the countries from
which or to which they are proceeding, or the origin or ownership of goods or
the country from which or to which they are consigned, or the nationality or
ownership of the ship or other means of conveying such passengers or goods before
or after their transport on the Chinese Railways.

The Contracting Powers, other than China, assume a corresponding obligation
in respect of any of the aforesaid railways over which they or their nationals
are in a position to exercise any control in virtue of any concession, special
agreement or otherwise.

Article VI

The Contracting Powers, other than China, agree fully to respect China’s
rights as a neutral in time of war to which China is not a party; and China
declares that when she is a neutral she will observe the obligations of neutrality.

Article VII

The Contracting Powers agree that, whenever a situation arises which in the
opinion of any one of them involves the application of the stipulations of the
present Treaty, and renders desirable discussion of such application, there shall
be full and frank communication between the Contracting Powers concerned.

Article VIII

Powers not signatory to the present Treaty, which have Governments recog-
nized by the Signatory Powers and which have treaty relations with China, shall
be invited to adhere to the present Treaty. To this end the Government of the
United States will make the necessary communications to nonsignatory Powers
and will inform the Contracting Powers of the replies received. Adherence
by any Power shall become effective on receipt of notice thereof by the
Government of the United States.

Article IX

The present Treaty shall be ratified by the Contracting Powers in accordance
with their respective constitutional methods and shall take effect on the date of
the deposit of all the ratifications, which shall take place at Washington as soon
as possible. The Government of the United States will transmit to the other
Contracting Powers a certified copy of the proc&s-verbal of the deposit ol
ratifications.

The present Treaty, of which the French and English texts are both authentic,
shall remain deposited in the archives of the Government of the United States,
and duly certified copies thereof shall be transmitted by that Government to the
other Contracting Powers.

442

U. S. RELATIONS WITH CHINA

In faith whereof the above-named Plenipotentiaries have signed the present
Treaty.

Done at the City of Washington the Sixth day of February One Thousand

Nine Hundred and Twenty-Two.

Charles Evans Hughes

[seal]

Henry Cabot Lodge

[seal]

Oscar W Underwood

[seal]

Elihu Hoot

[seal]

Baron de Cartier de Marchienne

[seal]

Arthur James Balfour

[seal]

Lee of Fareham

[seal]

A. C. Geddes

[seal]

R. L. Borden

[seal]

G. F. Pearce

[seal]

John W S almond

[seal]

Arthur James Balfour

[seal]

V S Srinivasa Sastri

[seal]

[SEAL]

Sao-Ke Alfred Sze

[seal]

V. K. Wellington Koo

[seal]

Chung-Hui Wang

[seal]

A Sarraut

[seal]

Jusserand

[seal]

Carlo Schanzer

[seal]

V. Rolandi Ricci

[seal]

Luigi Albertini

T. Kato

[seal]

K. Shidehara

[seal]

M. Hanihara

[seal]

Beelaerts van Blokland

[seal]

W. de Beaufort

[seal]

Alte

[seal]

Ernesto de Vascon cellos

[seal]

15

Statement by Secretary Kellogg , J anuary 27 , 1927 20

At this time, when there is so much discussion of the Chinese situation, I
deem it my duty to state clearly the position of the Department of State on the
questions of tariff autonomy and the relinquishment of extraterritorial rights.

The United States has always desired the unity, the independence and pros-
perity of the Chinese nation. It has desired that tariff control and extraterri-
toriality provided by our treaties with China should as early as possible be
released. It was with that in view that the United States made the declaration
in relation to the relinquishment of extraterritoriality in the Treaty of 1903 and
also entered into the Treaty of Washington of February 6, 1922, providing for
a Tariff Conference to be held within three months after the coming into force
of the Treaty.

20 Ibid., 1927, vol. II, p. 350.

ANNEXES

443

The United States is now and has been, ever since the negotiation of the Wash-
ington Treaty, prepared to enter into negotiations with any Government of
China or delegates who can represent or speak for China not only for the putting
into force of the surtaxes of the Washington Treaty but entirely releasing tariff
control and restoring complete tariff autonomy to China.

The United States would expect, however, that it be granted most favored
nation treatment and that there should be no discrimination against the United
States &nd its citizens in customs duties, or taxes, in favor of the citizens of
other nations or discrimination by grants of special privileges and that the open
door with equal opportunity for trade in China shall be maintained ; and further
that China should afford every protection to American citizens, to their property
and rights.

The United States is prepared to put into force the recommendations of the
Extraterritoriality Commission which can be put into force without a treaty
at once and to negotiate the release of extraterritorial rights as soon as China
is prepared to provide protection by law and through her courts to American
citizens, their rights and property.

The willingness of the United States to deal with China in the most liberal
spirit will be borne out by a brief history of the events since making the Wash-
ington Treaty. That Treaty was ratified by the last one of the Signatory Powers
on July 7, 1925, and the exchange of ratifications took place in Washington on
August 6, 1925. Before the treaties finally went into effect and on June 24, 1925,
the Chinese Government addressed identic notes to the Signatory Powers asking
for the revision of existing treaties. On the first of July 1925, I sent instructions
to our Minister in Peking, which instructions I also communicated to all the other
Governments, urging that this should be made the occasion of evidencing to the
Chinese our willingness to consider the question of treaty revision. I urged
that the Powers expedite preparations for the holding of the Special Conference
regarding the Chinese customs tariff and stated that the United States believed
that this special tariff conference should be requested, after accomplishing the
work required by the Treaty to make concrete recommendations upon which a
program for granting complete tariff autonomy might be worked out. The
Delegates of the United States were given full powers to negotiate a new treaty
recognizing China’s tariff autonomy. At the same time, I urged the appointment
of the Commission to investigate extraterritoriality, with the understanding that
the Commission should be authorized to include in its report recommendations
for the gradual relinquishment of extraterritorial rights. Prior to this, the Chi-
nese Government urged the United States to use its influence with the interested
Powers to hasten the calling of the Conference on Tariff Matters and the appoint-
ment of the Extraterritorial Commission and for each Government to grant to its
representatives the broad power to consider the whole subject of the revision of the
treaties and to make recommendations upon the subject of the abolition of extra-
territorial rights. This was in harmony with the views of the United States.
Accordingly, on September 4, 1925, the United States and each of the other Powers
having tariff treaties with China evidenced their intention to appoint their dele-
gates to the Tariff Conference. By a note which has been published, the Powers
informed China of their willingness to consider and discuss any reasonable
proposal that might be made by the Chinese Government on the revision of the
treaties on the subject of the tariff and also announced their intention of appoint-
ing their representatives to the Extraterritorial Commission for the purpose of
considering the whole subject of extraterritorial rights and authorizing them to
make recommendations for the purpose of enabling the governments concerned

444

tJ. S. RELATIONS WITH CHINA

to consider what, if any, steps might be taken with a view to the relinquishment
of extraterritorial rights. Delegates were promptly appointed and the Chinese
Tariff Conference met on October 26, 1925.

Shortly after the opening of the Conference and on November 3, 1925, the
American Delegation proposed that the Conference at once authorize the levying
of a surtax of two and one-half per cent on necessaries, and, as soon as the
requisite schedules could be prepared, authorize the levying of a surtax of up to
five per cent on luxuries, as provided for by the Washington Treaty. Our Dele-
gates furthermore announced that the Government of the United States was pre-
pared to proceed at once with the negotiation of such an agreement or agreements
as might be necessary for making effective other provisions of the Washington
Treaty of February 6, 1922. They affirmed the principle of respect for China’s
tariff autonomy and announced that they were prepared forthwith to negotiate
a new treaty which would give effect to that principle and which should make
provision for the abolition of likin, for the removal of tariff restrictions contained
in existing treaties and for the putting into effect of the Chinese National Tariff
Law. On November 19, 1925, the Committee on Provisional Measures of the
Conference, Chinese delegates participating, unanimously adopted the following
resolution :

“The Delegates of the Powers assembled at this Conference resolve to adopt
the following proposed article relating to tariff autonomy with a view to in-
corporating it, together with other matters, to be hereafter agreed upon, in a
treaty which is to be signed at this Conference.

“The Contracting Powers other than China hereby recognize China’s right
to enjoy tariff autonomy; agree to remove the tariff restrictions which are
contained in existing treaties between themselves respectively and China; and
consent to the going into effect of the Chinese National Tariff Law on January
1st, 1929.

“The Government of the Republic of China declares that likin shall be abol-
ished simultaneously with the enforcement of the Chinese National Tariff Law ;
and further declares that the abolition of likin shall be effectively carried out
by the First Day of the First Month of the Eighteenth Year of the Republic
of China (January 1st, 1929).”

Continuously from the beginning of the Conference, our delegates and technical
advisers collaborated with the delegates and technical advisers of the other
Powers, including China, in an effort to carry out this plan, — viz. to put into
effect the surtaxes provided for in the Washington Treaty, and to provide for
additional tariff adequate for all of China’s needs until tariff autonomy should go
into effect. Until about the middle of April 1926, there was every prospect for
the successful termination of the Conference to the satisfaction of the Chinese
and the other Powers. About that time the Government which represented
China at the Conference was forced out of power. The delegates of the United
States and the other Powers, however, remained in China in the hope of con-
tinuing the negotiations and on July 3, 1926, made a declaration as follows :

“The Delegates of the foreign Powers to the Chinese Customs Tariff Confer-
ence met at the Netherlands Legation this morning. They expressed the unani-
mous and earnest desire to proceed with the work of the Conference at the
earliest possible moment when the Delegates of the Chinese Government are
in a position to resume discussion with the foreign Delegates of the problems
before the Conference.”

ANNEXES

445

The Government of the United States was ready then and is ready now to
continue the negotiations on the entire subject of the tariff and extraterritoriality
or to take up negotiations on behalf of the United States alone. The only question
is with whom it shall negotiate. As I have said heretofore, if China can agree
upon the appointment of delegates representing the authorities or the people
of the country, we are prepared to negotiate such a treaty. However, existing
treaties which were ratified by the Senate of the United States cannot be abrogated
by the President but must be superseded by new treaties negotiated with some-
body representing China and subsequently ratified by the Senate of the United
States.

The Government of the United States has watched with sympathetic interest
the nationalistic awakening of China and welcomes every advance made by the
Chinese people toward reorganizing their system of Government.

During the difl5cult years since the establishment of the new regime in 1912,
the Government of the United States has endeavored in every way to maintain
an attitude of the most careful and strict neutrality as among the several factions
that have disputed with one another for control in China. The Government of
the United States expects, however, that the people of China and their leaders
will recognize the right of American citizens in China to protection for life and
property during the period of conflict for which they are not responsible. In the
event that the Chinese Authorities are unable to afford such protection, it is of
course the fundamental duty of the United States to protect the lives and
property of its citizens. It is with the possible necessity for this in view that
American naval forces are now in Chinese waters. This Government wishes to
deal with China in a most liberal spirit. It holds no concessions in China and
has never manifested any imperialistic attitude toward that country. It desires,
however, that its citizens be given equal opportunity with the citizens of the
other Powers to reside in China and to pursue their legitimate occupations
without special privileges, monopolies or spheres of special interest or influence.

16

Treaty Between the United States and China Regulating Tariff Re-
lations , Signed at Peiping , July 25, 1928 21

The United States of America and the Republic of China, both being animated
by an earnest desire to maintain the good relations which happily subsist between
the two countries, and wishing to extend and consolidate the commercial inter-
course between them, have, for the purpose of negotiating a treaty designed to
facilitate these objects, named as their Plenipotentiaries : —

The President of the United States of America :

J. V. A. MacMurray, Envoy Extraordinary and Minister Plenipotentiary of
the United States of America to China ;
and the Government Council of the Nationalist Government of the Republic of
China :

T. V. Soong, Minister of Finance of the Nationalist Government of the
Republic of China ;

who, having met and duly exchanged their full powers, which have been found
to be in proper form, have agreed upon the following treaty between the two
countries :

21 Ibid ., 1928, vol. II, p. 475.

446

U. S. RELATIONS WITH CHINA

Article I

All provisions which appear in treaties hitherto concluded and in force between
the United States of America and China relating to rates of duty on imports
and exports of merchandise, drawbacks, transit dues and tonnage dues in China
shall be annulled and become inoperative, and the principle of complete national
tariff autonomy shall apply subject, however, to the condition that each of the
High Contracting Parties shall enjoy in the territories of the other with respect
to the above specified and any related matters treatment in no way discriminatory
as compared with the treatment accorded to any other country.

The nationals of neither of the High Contracting Parties shall be compelled
under any pretext whatever to pay within the territories of the other Party
any duties, internal charges or taxes upon their importations and exportations
other or higher than those paid by nationals of the country or by nationals of any
other country.

The above provisions shall become effective on January 1, 1929, provided that
the exchange of ratifications hereinafter provided shall have taken place by that
date ; otherwise, at a date four months subsequent to such exchange of
ratifications.

Article II

The English and Chinese texts of this Treaty have been carefully compared
and verified ; but, in the event of there being a difference of meaning between the
two, the sense as expressed in the English text shall be held to prevail.

This treaty shall be ratified by the High Contracting Parties in accordance
with their respective constitutional methods, and the ratifications shall be ex-
changed in Washington as soon as possible.

In testimony whereof, we, the undersigned, by virtue of our respective powers
have signed this Treaty in duplicate in the English and Chinese languages and
have affixed our respective seals.

Done at Peiping, the 25th day of July, 1928, corresponding to the 25th day of
the 7th month of the 17th year of the Republic of China.

[seal] J. V. A. MacMurray

[seal] Tse Yen Soong

17

Secretary Stimson to the Ambassador in Japan ( Forbes ) 22

Washington, January 7, 1932 — noon.

7. Please deliver to the Foreign Office on behalf of your Government as soon
as possible the following note :

“With the recent military operations about Chinchow, the last remaining ad-
ministrative authority of the Government of the Chinese Republic in South
Manchuria, as it existed prior to September 18th, 1931, has been destroyed. The
American Government continues confident that the work of the neutral com-
mission recently authorized by the Council of the League of Nations will facilitate
an ultimate solution of the difficulties now existing between China and Japan.
But in view of the present situation and of its own rights and obligations therein,
the American Government deems it to be its duty to notify both the Imperial

22 Foreign Relations of the United States , Japan , 1931-1941, vol. I, p. 76.

ANNEXES

447

Japanese Government and the Government of the Chinese Republic that it cannot
admit the legality of any situation de facto nor does it intend to recognize any
treaty or agreement entered into between those Governments, or agents thereof,
which may impair the treaty rights of the United States or its citizens in China,
including those which relate to the sovereignty, the independence, or the terri-
torial and administrative integrity of the Republic of China, or to the inter-
national policy relative to China, commonly known as the open door policy ; and
that it does not intend to recognize any situation, treaty or agreement which may
be brought about by means contrary to the covenants and obligations of the Pact
of Paris of August 27, 1928, to which Treaty both China and Japan, as well as
the United States, are parties.”

State that an identical note is being sent to the Chinese government.

Secretary Stimson to Senator Borah , Chairman of the Committee on
Foreign Relations of the Senate , February 2 3 , 1932 23

You have asked my opinion whether, as has been sometimes recently suggested,
present conditions in China have in any way indicated that the so-called Nine
Power Treaty has become inapplicable or ineffective or rightly in need of modi-
fication, and if so, what I considered should be the policy of this Government

This Treaty, as you of course know, forms the legal basis upon which now
rests the “Open Door” policy towards China. That policy, enunciated by John
Hay in 1899, brought to an end the struggle among various powers for so-called
spheres of interest in China which was threatening the dismemberment of that
empire. To accomplish this Mr. Hay invoked two principles (1) equality of
commercial opportunity among all nations in dealing with China, and (2) as
necessary to that equality the preservation of China’s territorial and adminis-
trative integrity. These principles were not new in the foreign policy of America.
They had been the principles upon which it rested in its dealings with other
nations for many years. In the case of China they were invoked to save a
situation which not only threatened the future development and sovereignty of
that great Asiatic people, but also threatened to create dangerous and constantly
increasing rivalries between the other nations of the world. War had already
taken place between Japan and China. At the close of that war three other
nations intervened to prevent Japan from obtaining some of the results of that
war claimed by her. Other nations sought and had obtained spheres of interest.
Partly as a result of these actions a serious uprising had broken out in China
which endangered the legations of all of the powers at Peking. While the
attack on those legations was in progress, Mr. Hay made an announcement in
respect to this policy as the principle upon which the powers should act in the
settlement of the rebellion. He said

“The policy of the Government of the United States is to seek a solution which
may bring about permanent safety and peace to China, preserve Chinese terri-
torial and administrative entity, protect all rights guaranteed to friendly pow-
ers by treaty and international law, and safeguard for the world the principle
of equal and impartial trade with all parts of the Chinese Empire.”

He was successful in obtaining the assent of the other powers to the policy thus
announced.

» Ibid., p. 83.

448

U. S. RELATIONS WITH CHINA

In taking these steps Mr. Hay acted with the cordial support of the British
Government. In responding to Mr. Hay’s announcement, above set forth, Lord
Salisbury, the British Prime Minister expressed himself “most emphatically as
concurring in the policy of the United States.”

For twenty years thereafter the Open Door policy rested upon the informal
commitments thus made by the various powers. But in the winter of 1921 to
1922, at a conference participated in by all of the principal powers which had
interests in the Pacific, the policy was crystallized into the so-called Nine Power
Treaty, which gave definition and precision to the principles upon which the
policy rested. In the first article of that Treaty, the contracting powers, other
than China, agreed

1. To respect the sovereignty, the independence and the territorial and adminis-
trative integrity of China.

2. To provide the fullest and most unembarrassed opportunity to China to
develop and maintain for herself an effective and stable government.

3. To use their influence for the purpose of effectually establishing and main-
taining the principle of equal opportunity for the commerce and industry of all
nations throughout the territory of China.

4. To refrain from taking advantage of conditions in China in order to seek
special rights or privileges which would abridge the rights of subjects or citizens
of friendly states, and from countenancing action inimical to the security of
such states.

This Treaty thus represents a carefully developed and matured international
policy intended, on the one hand, to assure to all of the contracting parties their
rights and interests in and with regard to China, and on the other hand, to assure
to the people of China the fullest opportunity to develop without molestation their
sovereignty and independence according to the modern and enlightened standards
believed to maintain among the peoples of this earth. At the time this Treaty
was signed, it was known that China was engaged in an attempt to develop the
free institutions of a self-governing republic after her recent revolution from an
autocratic form of government; that she would require many years of both
economic and political effort to that end ; and that her progress would necessarily
be slow. The Treaty was thus a covenant of self-denial among the signatory
powers in deliberate renunciation of any policy of aggression which might tend
to interfere with that development. It was believed — and the whole history of
the development of the “Open Door” policy reveals that faith — that only by such
a process, under the protection of such an agreement, could the fullest interests
not only of China but of all nations which have intercourse with her best be
served.

In its report to the President announcing this Treaty, the American Delegation,
headed by the then Secretary of State, Mr. Charles E. Hughes, said

“It is believed that through this Treaty the ‘Open Door’ in China has at last
been made a fact.”

During the course of the discussions which resulted in the Treaty, the Chairman
of the British delegation, Lord Balfour, had stated that

“The British Empire delegation understood that there was no representative
of any power around the table who thought that the old practice of ‘spheres of
interest’ was either advocated by any government or would be tolerable to this
conference. So far as the British Government was concerned, they had, in the

ANNEXES 449

most formal manner, publicly announced that they regarded this practice as
utterly inappropriate to the existing situation. ,,

At the same time the representative of Japan, Baron Shidehara, announced the
postion of his government as follows :

“No one denies to China her sacred right to govern herself. No one stands in
the way of China to work out her own great national destiny.”

The Treaty was originally executed by the United States, Belgium, the British
Empire, China, France, Italy, Japan, the Netherlands and Portugal. Subse-
quently it was also executed by Norway, Bolivia, Sweden, Denmark and Mexico.
Germany has signed it but her Parliament has not yet ratified it.

It must be remembered also that this Treaty was one of several treaties and
agreements entered into at the Washington Conference by the various powers
concerned, all of which were interrelated and interdependent. No one of these
treaties can be disregarded without disturbing the general understanding and
equilibrium which were intended to be accomplished and effected by the group
of agreements arrived at in their entirety. The Washington Conference was
essentially a disarmament conference, aimed to promote the possibility of peace
in the world not only through the cessation of competition in naval armament
but also by the solution of various other disturbing problems which threatened
the peace of the world, particularly in the Far East. These problems were all
interrelated. The willingness of the American government to surrender its then
commanding lead in battleship construction and to leave its positions at Guam
and in the Philippines without further fortification, was predicated upon, among
other things, the self-denying covenants contained in the Nine Power Treaty,
which assured the nations of the world not only of equal opportunity for their
Eastern trade but also against the military aggrandizement of any other power
at the expense of China. One cannot discuss the possibility of modifying or
abrogating those provisions of the Nine Power Treaty without considering at the
same time the other promises upon which they were really dependent.

Six years later the policy of self-denial against aggression by a stronger against
a weaker power, upon which the Nine Power Treaty had been based, received a
powerful reinforcement by the execution by substantially all the nations of the
world of the Pact of Paris, the so-called Kellogg-Briand Pact. These two
treaties represent independent but harmonious steps taken for the purpose of
aligning the conscience and public opinion of the world in favor of a system of
orderly development by the law of nations including the settlement of all
controversies by methods of justice and peace instead of by arbitrary force.
The program for the protection of China from outside aggression is an essential
part of any such development. The signatories and adherents of the Nine
Power Treaty rightly felt that the orderly and peaceful development of the
400,000,000 of people inhabiting China was necessary to the peaceful welfare of
the entire world and that no program for the welfare of the world as a whole could
afford to neglect the welfare and protection of China.

The recent events which have taken place in China, especially the hostilities
which having been begun in Manchuria have latterly been extended to Shanghai,
far from indicating the advisability of any modification of the treaties we have
been discussing, have tended to bring home the vital importance of the faithful
observance of the covenants therein to all of the nations interested in the Far
East. It is not necessary in that connection to inquire into the causes of the
controversy or attempt to apportion the blame between the two nations which are
unhappily involved ; for regardless of cause or responsibility, it is clear beyond

450

IT. S. RELATIONS WITH CHINA

peradventure that a situation has developed which cannot, under any circum-
stances, be reconciled with the obligations of the covenants of these two treaties,
and that if the treaties had been faithfully observed such a situation could not
have arisen. The signatories of the Nine Power Treaty and of the Kellogg-Briand
Pact who are not parties to that conflict are not likely to see any reason for
modifying the terms of those treaties. To them the real value of the faithful
performance of the treaties has been brought sharply home by the perils and
losses to which their nationals have been subjected in Shanghai.

That is the view of this Government. We see no reason for abandoning the
enlightened principles which are embodied in these treaties. We believe that this
situation would have been avoided had these covenants been faithfully observed,
and no evidence has come to us to indicate that a due compliance with them
would have interfered with the adequate protection of the legitimate rights in
China of the signatories of those treaties and their nationals.

On January 7th last, upon the instruction of the President, this Government
formally notified Japan and China that it would not recognize any situation,
treaty or agreement entered into by those governments in violation of the cove-
nants of these treaties, which affected the rights of our Government or its
citizens in China. If a similar decision should be reached and a similar position
taken by the other governments of the world, a caveat will be placed upon such
action which, we believe, will effectively bar the legality hereafter of any title or
right sought to be obtained by pressure or treaty violation, and which, as has been
shown by history in the past, will eventually lead to the restoration to China of
rights and titles of which she may have been deprived.

In the past our Government, as one of the leading powers on the Pacific Ocean,
has rested its policy upon an abiding faith in the future of the people of China
and upon the ultimate success in dealing with them of the principles of fair play,
patience, and mutual goodwill. We appreciate the immensity of the task which
lies before her statesmen in the development of her country and its government.
The delays in her progress, the instability of her attempts to secure a responsible
government, were foreseen by Messrs. Hay and Hughes and their contemporaries
and were the very obstacles which the policy of the Open Door was designed to
meet. We concur with those statesmen, representing all the nations in the
Washington Conference who decided that China was entitled to the time neces-
sary to accomplish her development. We are prepared to make that our policy
for the future.

Very truly yours, Henry L. Stimson

19

Statement by Secretary Hull, December 5, 1935 24

In reply to inquiries by press correspondents in regard to the “autonomy
movement” in North China, Chinese and Japanese activities in relation thereto,
and the American Government’s attitude, the Secretary of State said :

There is going on in and with regard to North China a political struggle which
is unusual in character and which may have far-reaching effects. The persons
mentioned in reports of it are many ; the action is rapid and covers a large area ;
opinions with regard to it vary ; what may come of it no one could safely under-
take to say ; but, whatever the origin, whoever the agents, be what they may the
methods, the fact stands out that an effort is being made — and is being resisted —

* Ibid p. 240.

ANNEXES

451

to bring about a substantial change in the political status and condition of
several of China’s northern provinces.

Unusual developments in any part of China are rightfully and necessarily of
concern not alone to the Government and people of China but to all of the many
powers which have interests in China. For, in relations with China and in
China, the treaty rights and the treaty obligations of the “treaty powers” are in
general identical. The United States is one of those powers.

In the area under reference the interests of the United States are similar to
those of other powers. In that area there are located, and our rights and obliga-
tions appertain to, a considerable number of American nationals, some American
property, and substantial American commercial and cultural activities. The
American Government is therefore closely observing what is happening there.

Political disturbances and pressures give rise to uncertainty and misgiving
and tend to produce economic and social dislocations. They make difficult the
enjoyment of treaty rights and the fulfillment of treaty obligations.

The views of the American Government with regard to such matters not alone
in relation to China but in relation to the whole world are well known. As I
have stated on many occasions, it seems to this Government most important in
this period of world-wide political unrest and economic instability that gov-
ernments and peoples keep faith in principles and pledges. In international rela-
tions there must be agreements and respect for agreements in order that there may
be the confidence and stability and sense of security which are essential to
orderly life and progress. This country has abiding faith in the fundamental
principles of its traditional policy. This Government adheres to the provisions
of the treaties to which it is a party and continues to bespeak respect by all na-
tions for the provisions of treaties solemnly entered into for the purpose of
facilitating and regulating, to reciprocal and common advantage, the contacts
between and among the countries signatory.

20

Press Release Issued by the Department of State on October 6 , 1937 25

The Department of State has been informed by the American Minister to
Switzerland of the text of the report adopted by the Advisory Committee of the
League of Nations setting forth the Advisory Committee’s examination of the
facts of the present situation in China and the treaty obligations of Japan. The
Minister has further informed the Department that this report was adopted and
approved by the Assembly of the League of Nations today, October 6.

Since the beginning of the present controversy in the Far East, the Govern-
ment of the United States has urged upon both the Chinese and the Japanese Gov-
ernments that they refrain from hostilities and has offered to be of assistance
in an effort to find some means, acceptable to both parties to the conflict, of
composing by pacific methods the situation in the Far East.

The Secretary of State, in statements made public on July 16 and August 23,
made clear the position of the Government of the United States in regard to
international problems and international relationships throughout the world
and as applied specifically to the hostilities which are at present unfortunately
going on between China and Japan. Among the principles which in the opinion
of the Government of the United States should govern international relationships,

58 Ibid., p. 396.

452

U. S. RELATIONS WITH CHINA

if peace is to be maintained, are abstinence by all nations from tbe use of force
in the pursuit of policy and from interference in the internal affairs of other
nations ; adjustment of problems in international relations by process of peaceful
negotiation and agreement; respect by all nations for the rights of others and
observance by all nations of established obligations ; and the upholding of the
principle of the sanctity of treaties.

On October 5 at Chicago the President elaborated these principles, emphasizing
their importance, and in a discussion of the world situation pointed out that
there can be no stability or peace either within nations or between nations except
under laws and moral standards adhered to by all; that international anarchy
destroys every foundation for peace ; that it jeopardizes either the immediate or
the future security of every nation, large or small ; and that it is therefore of
vital interest and concern to the people of the United States that respect for
treaties and international morality be restored.

In the light of the unfolding developments in the Far East, the Government
of the United States has been forced to the conclusion that the action of Japan
in China is inconsistent with the principles which should govern the relationships
between nations and is contrary to the provisions of the Nine Power Treaty of
February 6, 1922, regarding principles and policies to be followed in matters con-
cerning China, and to those of the Kellogg-Briand Pact of August 27, 1928. Thus
the conclusions of this Government with respect to the foregoing are in general
accord with those of the Assembly of the League of Nations.

21

The Ambassador in Japan {Grew) to Prince Konoye , Japanese Prime
Minister and Minister for Foreign Affairs 26

No. 1076 Tokyo, October 6 , 1938.

Excellency : On the occasion of the interview which Your Excellency accorded
me on October 3, when I had the honor to convey orally the views and desires of
my Government with regard to conditions in China being brought about by
agencies or representatives of the Japanese Government, which are violative of
or prejudicial to American rights and interests in China, I undertook to set forth
and to extend those views and desires in a note to be presented shortly thereafter.
In fulfilment of that undertaking and under instruction from my Government,
I now have the honor to address Your Excellency as follows :

The Government of the United States has had frequent occasion to make repre-
sentations to Your Excellency’s Government in regard to action taken and policies
carried out in China under Japanese to which the Government of the United States
takes exception as being, in its opinion, in contravention of the principle and the
condition of equality of opportunity or the “open door” in China. In response
to these representations, and in other connections, both public and private, the
Japanese Government has given categorical assurances that equality of opportu-
nity or the open door in China will be maintained. The Government of the United
States is constrained to observe, however, that notwithstanding the assurances of
the Japanese Government in this regard violation by Japanese agencies of Ameri-
can rights and interests has persisted.

As having by way of illustration a bearing on the situation to which the Gov-
ernment of the United States desires to invite the attention of the Japanese

26 Ibid., p. 785.

ANNEXES

453

Government, it is recalled that at the time of the Japanese occupation of Man-
churia the Japanese Government gave assurances that the open door in Manchuria
would be maintained. However, the principal economic activities in that area
have been taken over by special companies which are controlled by Japanese
nationals and which are established under special charters according them a
preferred or exclusive position. A large part of American enterprise which for-
merly operated in Manchuria has been forced to withdraw from that territory as
a result of the preferences in force there. Arrangements between Japan and the
regime now functioning in Manchuria allow the free movement of goods and funds
between Manchuria and Japan while restricting rigidly the movement of goods
and funds between Manchuria and countries other than Japan.

This channeling of the movement of goods is effected primarily by means
of exchange control exercised under the authority of regulations issued under
an enabling law which provide expressly that for the purposes of the law
Japan shall not be considered a foreign country nor the Japanese yen a foreign
currency. In the opinion of my Government equality of opportunity or open
door has virtually ceased to exist in Manchuria notwithstanding the assurances
of the Japanese Government that it would be maintained in that area.

The Government of the United States is now apprehensive lest there develop
in other areas of China which have been occupied by Japanese military forces
since the beginning of the present hostilities a situation similar in its adverse
effect upon the competitive position of American business to that which now
exists in Manchuria.

On April 12, 1938 I had occasion to invite the attention of Your Excellency’s
predecessor to reports which had reached the Government of the United States
indicating that discrimination in favor of Japanese trade with North China
was likewise to be by means of exchange control and to ask for assurances
that the Japanese Government would not support or countenance financial meas-
ures discriminating against American interests. Although the Minister for
Foreign Affairs stated then that the Japanese Government would continue to
support the principle of equal opportunity or open door in China no specific
reply has yet been made by the Japanese Government on the subject of these
representations.

The Government of the United States now learns that the Japanese authorities
at Tsingtao have in effect established an exchange control, that they are exercis-
ing a discretionary authority to prohibit exports unless export bills are sold to
the Yokohama Specie Bank, and that the Bank refuses to purchase export bills
except at an arbitrary rate far lower than the open market rate prevailing at
Tientsin and Shanghai. A somewhat similar situation apparently prevails at
Chefoo. Furthermore, reports continue to reach the American Government that
a comprehensive system of exchange control will soon be established through-
out North China. Control of foreign exchange transactions gives control of
trade and commercial enterprise, and the exacting, either directly or indirectly,
by the Japanese authorities of control of exchange in North China would place
those authorities in position to thwart equality of opportunity or free competi-
tion between Japan and the United States in that area. In such a situation,
imports from and exports to the United States, as well as the choice of dealers
in North China, would be entirely subjected to the dispensation of the Japanese
authorities. Notwithstanding the short time that exchange control has been
enforced in Tsingtao, two cases of discrimination have already been brought
to the attention of the Government of the United States. In one instance an
American dealer in a staple commodity has been unable to export to the United

454

IT. S. RELATIONS WITH CHINA

States because Japanese authorities there have insisted that his export bills be
sold to a Japanese bank at a price so far below the current rate of exchange
of the Chinese currency in the open market that such transaction would involve
a loss rather than a profit; but a Japanese competitor recently completed a
large shipment invoiced at a price in United States dollars which was equivalent
to the local market price calculated at the current open market rate. In the
other instance, an American firm was prevented from purchasing tobacco in
Shantung unless it should purchase so-called Federal Reserve notes or yen
currency with foreign money and at an arbitrary and low rate of exchange,
conditions not imposed upon the company’s Japanese or Chinese competitors.

The Government of the United States has already pointed out to the Japanese
Government that alterations of the Chinese customs tariff by the regimes func-
tioning in those portions of China occupied by Japanese armed forces and for
which the Japanese Government has formally assured its support are arbitrary
and illegal assumptions of authority for which the Japanese Government has an
Inescapable responsibility. It is hardly necessary to add that there can be no
equality of opportunity or open door in China so long as the ultimate authority
to regulate, tax, or prohibit trade is exercised, whether directly or indirectly,
by the authorities of one “foreign” power in furtherance of the interests of that
power. It would appear to be self-evident that a fundamental prerequisite of a
condition of equality of opportunity or open door in China is the absence in the
economic life of that country of preferences or monopolistic rights operating
directly or indirectly in favor of any foreign country or its nationals. On July
4 I spoke to General Ugaki of the desire of the American Government that there
be avoided such restrictions and obstacles to American trade and other enter,
prises as might result from the setting up of special companies and monopolies in
China. The Minister was so good as to state that the open door in China would
be maintained and that the Government of the United States might rest assured
that the Japanese Government would fully respect the principle of equal
opportunity.

Notwithstanding these assurances, the Provisional regime in Peiping announced
on July 30th the inauguration as of the following day of the China Telephone
and Telegraph Company, the reported purpose of this organization being to con-
trol and to have exclusive operation of telephone and telegraph communications
in North China. There was organized in Shanghai on July 31st the Central
China Telecommunications Company, and the Special Service Section of the
Japanese army has informed foreign cable and telegraph companies that the
new company proposes to control all the telecommunications in Central China.
According to a semi-official Japanese press report, there was organized at
Shanghai on July 28 the Shanghai Inland Navigation Steamship Company to
be controlled by Japanese the reported object of which is to control water trans-
portation in the Shanghai delta area. According to information which has
reached my Government, a Japanese company has been organized to take over and
operate the wharves at Tsingtao which have hitherto been publicly owned and
operated. Should such a development occur, all shipping of whatever nationality
would become dependent upon a Japanese agency for allotments of space and
stevedoring facilities. The wool trade in North China is now reported to be a
Japanese monopoly and a tobacco monopoly in that area is reported to be in
process of formation. Moreover, according to numerous reports which have
been reaching my Government, the Japanese Government is proceeding with the
organization of two special promotion companies which it has chartered and

ANNEXES 455

which it will control with the object of investing in, unifying, and regulating the
administration of certain large sectors of economic enterprise in China.

The developments of which I have made mention are illustrative of the apparent
trend of Japanese policy in China and indicate clearly that the Japanese authori-
ties are seeking to establish in areas which have come under Japanese military
occupation general preferences for, and superiority of, Japanese interests, an
inevitable effect of which will be to frustrate the practical application of the
principle of the open door and deprive American nationals of equal opportunity.

I desire also to call Your Excellency’s attention to the fact that unwarranted
restrictions placed by the Japanese military authorities upon American nationals
in China — notwithstanding the existence of American treaty rights in China and
the repeated assurances of the Japanese Government that steps had been taken
which would insure that American nationals, interests and property would not
be subject to unlawful interference by Japanese authorities — further subject
American interests to continuing serious inconvenience and hardships. Reference
is made especially to the restrictions placed by the Japanese military upon
American nationals who desire to reenter and reoccupy properties from which
they have been driven by the hostilities and of which the Japanese military have
been or still are in occupation. Mention may also be made of the Japanese cen-
sorship of and interference with American mail and telegrams at Shanghai and
of restrictions upon freedom of trade, residence and travel by Americans, includ-
ing the use of railways, shipping, and other facilities. While Japanese merchant
vessels are carrying Japanese merchandise between Shanghai and Nanking, those
vessels decline to carry merchandise of other countries, and American and other
non- Japanese shipping is excluded from the lower Yangtze on the grounds of
military necessity. Applications by American nationals for passes which would
allow them to return to certain areas in the lower Yangtze valley have been
denied by the Japanese authorities on the ground that peace and order have not
been sufficiently restored, although many Japanese merchants and their families
are known to be in those areas.

American nationals and their interests have suffered serious losses in the Far
East arising from causes directly attributable to the present conflict between
Japan and China, and even under the most favorable conditions an early rehabili-
tation of American trade with China cannot be expected. The American Gov-
ernment, therefore, finds it all the more difficult to reconcile itself to a situation
in which American nationals must contend with continuing unwarranted inter-
ference with their rights at the hands of the Japanese authorities in China and
with Japanese actions and policies which operate to deprive American trade
and enterprise of equality of opportunity in China. It is also pertinent to men-
tion that in Japan, too, American trade and other interests are undergoing
severe hardships as a result of the industrial, trade, exchange and other controls
which the Japanese Government has imposed incident to its military operations
in China.

While American interests in the Far East have been thus treated at the hands
of the Japanese authorities, the Government of the United States has not sought
either in its own territory or in the territory of third countries to establish or
influence the establishment of embargoes, import prohibitions, exchange controls,
preferential restrictions, monopolies or special companies — designed to eliminate
or having the effect of eliminating Japanese trade and enterprise. In its treat-
ment of Japanese nationals and their trade and enterprise, the American Gov-
ernment has been guided not only by the letter and spirit of the Japanese-
American Commercial Treaty of 1911 but by those fundamental principles of

456

U. S. RELATIONS WITH CHINA

international law and order which have formed the basis of its policy in regard
to all peoples and their interests ; and Japanese commerce and enterprise have
continued to enjoy in the United States equality of opportunity.

Your Excellency cannot fail to recognize the existence of a great and growing
disparity between the treatment accorded American nationals and their trade
and enterprise by Japanese authorities in China and Japan and the treatment
accorded Japanese nationals and their trade and enterprise by the Government
of the United States in areas within its jurisdiction.

In the light of the situation herein reviewed the Government of the United
States asks that the Japanese Government implement its assurances already
given with regard to the maintenance of the open door and to non-interference
with American rights by taking prompt and effective measures to cause,

(1) The discontinuance of discriminatory exchange control and of other meas-
ures imposed in areas in China under Japanese control which operate either
directly or indirectly to discriminate against American trade and enterprise ;

(2) The discontinuance of any monopoly or of any preference which would
deprive American nationals of the right of undertaking any legitimate trade or
industry in China or of any arrangement which might purport to establish in
favor of Japanese interests any general superiority of rights with regard to com-
mercial or economic development in any region of China ; and

(3) The discontinuance of interference by Japanese authorities in China with
American property and other rights including such forms of interference as
censorship of American mail and telegrams and restrictions upon residence and
travel by Americans and upon American trade and shipping.

The Government of the United States believes that in the interest of relations
between the United States and Japan an early reply would be helpful.

I avail myself [etc.] Joseph C. Grew

22

The Javanese Foreiqn Minister ( Arita ) to the Ambassador in Javan

(Grew) 27

[Translation]

No. 102, American I [Tokyo,] November 18, 1938 .

Excellency : I have the honor to inform Your Excellency that I have carefully
perused the contents of Your Excellency’s note no. 1076, dated October 6th,
addressed to the then Minister for Foreign Affiairs Prince Konoye, concerning the
rights and interests of the United States in China.

In this note, Your Excellency sets forth, on the basis of information in the
possession of the Government of the United States, various instances in which
Japanese authorities are subjecting American citizens in China to discriminatory
treatment and are violating the rights and interests of the United States.

The views held by the Japanese Government with regard to these instances
may be stated as follows :

1. According to the information in the possession of the Imperial Government,
the circumstances which led to the adoption of such measures as those at present
enforced in Tsingtao concerning export exchange, and the present situation being
as set forth below, it is believed that those measures cannot be construed as
constituting any discrimination against American citizens.

27 Ibid p. 797.

ANNEXES

457

A short time ago the Federal Reserve Bank of China was established in North
China. This bank’s notes, with foreign exchange value fixed at one shilling and
two pence to one yuan, already have been issued to an amount of more than one
hundred million yuan, and are being widely circulated. These bank notes being
the legal currency required by the Provisional Government, the maintenance of
their value and their smooth circulation is regarded as an indispensable basis
for the conduct and development of economic activities in North China. Since
the Japanese Government has, therefore, taken a cooperative attitude, all Jap-
anese subjects are using those notes, and accordingly, even in their export trade
are exchanging them at the rate of one shilling and two pence. On the other
hand, the former legal currency still circulating in these areas has depreciated
in exchange value to about eight pence per yuan. Consequently those who are
engaged in export trade and are using this currency, are enjoying improper and
excessive profits, as compared with those who are using Federal Reserve notes
and carrying on legitimate transactions at the legally established rate of ex-
change. Japanese subjects and others who are using Federal Reserve notes have
been suffering unreasonable and excessive losses as compared with those persons
who use exclusively the former legal currency although residing and carrying on
their businesses in the areas under the jurisdiction of the Provisional Government
of North China. Furthermore, the existence of the above mentioned disparity
between the foreign exchange value of the Federal Reserve notes and that of the
former legal currency, which currency the Federal Reserve Bank has been and is
exchanging at a rate almost on a par with its own notes, is bound to exert an
unfavourable effect upon the exchange value of the Federal Reserve notes, and
eventually also upon the exchange value of the Japanese yen. The Japanese
Government therefore can not remain indifferent to such a situation.

In order to place the users of the former legal currency who have been obtain-
ing improper and excessive profits on an equal footing with those using the
Federal Reserve notes and at the same time to assist in the maintenance of
the exchange value of the Federal Reserve Bank notes, represents an objective
of those export exchange measures adopted at Tsingtao. Inasmuch as the ap-
plication of the measures makes no differentiation according to nationality they
are not at all discriminatory. As a matter of fact, it is through these measures
that those users of the Federal Reserve notes who had in a sense been dis-
criminated against have been placed on an equal footing with the others, and thus,
for the first time on equal footing, are enabled to compete on an entirely equitable
basis.

2. Some time ago the new regimes in North and Central China revised the
Customs tariff rates seeking to secure a rational modification of the former
tariff rates enforced by the Nationalist Government, because those rates were
unduly high and not suitable for the promotion of the economic recovery and
general welfare of the Chinese people. In any case, the schedule adopted is
the one that was readily approved by the Powers in 1931, and was not calculated
to inure to the benefit of any particular country. Accordingly no complaint
has been heard from foreign residents of any nationality in China. The
Japanese Government is, of course, in favor of the purpose of this revision, and
believes that it will serve to promote effectively the trade of all countries with
China.

3. As for the organization of certain promotion companies in China, the
restoration and development of China’s economic, financial and industrial ac-
tivities following the present incident is a matter of the most urgent necessity
for the welfare of the Chinese people. Moreover, the Japanese Government,

458

U. S. RELATIONS WITH CHINA

for the sake of the realization of a new order in East Asia, is exceedingly
anxious for the prompt inauguration and progress of undertakings looking
toward such restoration and development, and is devoting every constructive
effort to realize this objective. The fact that the North China Development
Company and the Central China Promotion Company were established repre-
sents nothing other than an offer to China of the necessary assistance for this
restoration, and at the same time, an attempt to contribute to the development
of the natural resources of China. It does not in any way impair the rights
and interests of nationals of Your Excellency’s country or in any way dis-
criminate against their enterprises. The Japanese Government therefore, of
course, has no intention of opposing, but rather welcomes heartily, the participa-
tion of third Powers which intend to cooperate on the basis of the new
conditions.

The telecommunication companies in North and Central China, the inland
navigation steamship company at Shanghai and the wharfage company at
Tsingtao have also been established to meet the imperative need of an early
restoration of communications, transportation, and harbor facilities which were
destroyed as a result of the incident. It is proper that the telecommunications
enterprise, not only because of its nature as a public utility but also in view of
its relation to the maintenance of peace and order and to national defense,
should be undertaken by special companies. However, all other enterprises
being ordinary Chinese or Japanese juridical persons, do not have the objectives
of discrimination against Your Excellency’s country or third powers or of the
gaining of monopolistic profits. As regards the wool trade, while the control
of purchasing agencies was enforced in the Mongolian region, it now has been
discontinued. There is at present no plan of any sort for the establishment of
a tobacco monopoly.

4. Concerning the return of American citizens to the occupied areas, in North
China there is no restriction on their returning, except in special cases where
the personal safety of those who return would be endangered. Your Excellency
is aware that in the Yangtze Valley large numbers of Americans have already
returned. The fact that permission to return has not yet been made general
is, as has been repeatedly communicated to Your Excellency, owing to considera-
tions of the danger involved on account of order not yet being restored, or because
of the impossibility of admitting nationals of third Powers on account of strategic
necessities such as the preservation of military secrets. Further, the various
restrictions enforced in the occupied areas concerning the residence, travel, enter-
prise and trade of American citizens, constitute the minimum regulations pos-
sible consistent with military necessities and the local conditions of peace and
order. It is the intention of the Japanese Government to restore normal
conditions as soon as circumstances permit.

5. The Japanese Government is surprised at the allegation that there exists
a fundamental difference between the treatment accorded to Japanese in America
and the treatment accorded to Americans in Japan. While it is true that in this
period of emergency, Americans residing in this country are subject to various
economic restrictions, these restrictions are, needless to say, imposed not upon
Americans alone but also equally upon all foreigners as well as upon Japanese
subjects. A statement of the views of the Japanese Government concerning the
opinion as set forth in Your Excellency’s note, regarding the treatment of
Japanese subjects in American territory, is reserved for another occasion.

While the Japanese Government with the intention of fully respecting Ameri-
can rights and interests in China, as has been frequently stated above, has been

ANNEXES

459

making every effort in that direction, in view of the fact that military operations
on a scale unprecedented in our history are now being carried out in East Asia,
I am of the opinion that the Government of Your Excellency’s country also
should recognize the fact that occasionally obstacles arise hindering the effecting
of the intention of respecting the rights and interests of Your Excellency’s country.

At present Japan, devoting its entire energy to the establishment of a new
order based on genuine international justice throughout East Asia, is making
rapid strides toward the attainment of this objective. The successful accom-
plishment of this purpose is not only indispensable to the existence of Japan,
but also constitutes the very foundation of the enduring peace and stability of
East Asia.

It is the firm conviction of the Japanese Government that now, at a time of the
continuing development of new conditions in East Asia, an attempt to apply to
present and future conditions without any changes concepts and principles
which were applicable to conditions prevailing before the present incident does
not in any way contribute to the solution of immediate issues and further does
not in the least promote the firm establishment of enduring peace in East Asia.

The Imperial Government, however, does not have any intention of objecting
to the participation in the great work of the reconstruction of East Asia by Your
Excellency’s country or by other Powers, in all fields of trade and industry,
when such participation is undertaken with an understanding of the purport
of the above stated remarks ; and further, I believe that the regimes now being
formed in China are also prepared to welcome such participation.

I avail myself [etc.] Hachiro Arita

23

The Ambassador in Japan {Grew) to the Japanese Foreign Minister

{Arita) 28

No * 115 3 Tokyo, December SO , 1938.

Excellency: Acting under the instructions of my Government I have the
honor to address to Your Excellency the following note :

The Government of the United States has received and has given full con-
sideration to the reply of the Japanese Government of November 18 to this
Government s note of October 6 on the subject of American rights and interests
in China.

In the light of facts and experience the Government of the United States is
impelled to reaffirm its previously expressed opinion that imposition of restric-
tions upon the movements and activities of American nationals who are engaged
in philanthropic, educational and commercial endeavors in China has placed and
will, if continued, increasingly place Japanese interests in a preferred position
and is, therefore, unquestionably discriminatory in its effect against legitimate
American interests. Further, with reference to such matters as exchange
control, compulsory currency circulation, tariff revision, and monopolistic pro-
motion in certain areas of China the plans and practices of the Japanese au-
thorities imply an assumption on the part of those authorities that the Japanese
Government or the regimes established and maintained in China by Japanese
armed forces are entitled to act in China in a capacity such as flows from rights
of sovereignty and further in so acting to disregard and even to declare non-

p. 820 .

460

U. S. RELATIONS WITH CHINA

existent or abrogated the established rights and interests of other countries
including the United States.

The Government of the United States expresses its conviction that the re-
strictions and measures under reference not only are unjust and unwarranted
but are counter to the provisions of several binding international agreements,
voluntarily entered into, to which both Japan and the United States, and in
some cases other countries, are parties.

In the concluding portion of its note under reference, the Japanese Government
states that it is firmly convinced that “in the face of the new situation, fast
developing in Asia, any attempt to apply to the conditions of today and tomorrow
inapplicable ideas and principles of the past neither would contribute toward
the establishment of a real peace in East Asia nor solve the immediate issues”
and that “as long as these points are understood Japan has not the slightest
inclination to oppose the participation of the United States and other Powers in
the great work of reconstructing East Asia along all lines of industry and trade.”

The Government of the United States in its note of October 6 requested, in
view of the oft reiterated assurances proffered by the Government of Japan of
its intention to observe the principles of equality of opportunity in its relations
with China and in view of Japan’s treaty obligations so to do, that the Govern-
ment of Japan abide by these obligations and carry out these assurances in
practice. The Japanese Government in its reply appears to affirm that it is its
intention to make its observance of that principle conditional upon an under-
standing by the American Government and by other governments of a “new
situation” and a “new order” in the Far East as envisaged and fostered by
Japanese authorities.

Treaties which bear upon the situation in the Far East have within them
provisions relating to a number of subjects. In the making of those treaties,
there was a process among the parties to them of give and take. Toward making
possible the carrying out of some of their provisions, others among their provi-
sions were formulated and agreed upon : toward gaining for itself the advantage
of security in regard to certain matters, each of the parties committed itself to
pledges of self-denial in regard to certain other matters. The various pro-
visions agreed upon may be said to have constituted collectively an arrange-
ment for safeguarding, for the benefit of all, the correlated principles on the one
hand of national integrity and on the other hand of equality of economic oppor-
tunity. Experience has shown that impairment of the former of these principles
is followed almost invariably by disregard of the latter. Whenever any govern-
ment begins to exercise political authority in areas beyond the limits of its law-
ful jurisdiction there develops inevitably a situation in which the nationals of that
government demand and are accorded, at the hands of their government, pre-
ferred treatment, whereupon equality of opportunity ceases to exist and dis-
criminatory practices, productive of friction, prevail.

The admonition that enjoyment by the nationals of the United States of
non-discriminatory treatment in China — a general and well-established right —
is henceforth to be contingent upon an admission by the Government of the United
States of the validity of the conception of Japanese authorities of a “new situa-
tion” and a “new order” in East Asia, is, in the opinion of this Government, highly
paradoxical.

This country’s adherence to and its advocacy of the principle of equality of
opportunity do not flow solely from a desire to obtain the commercial benefits
which naturally result from the provisions of that principle. They flow from
a firm conviction that observance of that principle leads to economic and political

ANNEXES

461

stability, which are conducive both to the internal well-being of nations and to
mutually beneficial and peaceful relationships between and among nations;
from a firm conviction that failure to observe that principle breeds international
friction and ill-will, with consequences injurious to all countries, including in
particular those countries which fail to observe it; and from an equally firm
conviction that observance of that principle promotes the opening of trade chan-
nels thereby making available the markets, the raw materials and the manufac-
tured products of the community of nations on a mutually and reciprocally
beneficial basis.

The principle of equality of economic opportunity is, moreover, one to which
over a long period and on many occasions the Japanese Government has given
definite approval. It is one to the observance of which the Japanese Government
has committed itself in various international agreements and understandings.
It is one upon observance of which by other nations the Japanese Government
has of its own accord and upon its own initiative frequently insisted. It is one to
which the Japanese Government has repeatedly during recent months declared
itself committed.

The people and the Government of the United States could not assent to the
establishment at the instance of and for the special purposes of any third country
of a regime which would arbitrarily deprive them of the long established rights
of equal opportunity and fair treatment which are legally and justly theirs along
with those of other nationals.

Fundamental principles such as the principle of equality of opportunity which
have long been regarded as inherently wise and just which have been widely
adopted and adhered to, and which are general in their application are not sub-
ject to nullification by a unilateral affirmation.

With regard to the implication in the Japanese Government’s note that the
‘‘conditions of today and tomorrow” in the Far East call for a revision of the
ideas and principles of the past, this Government desires to recall to the Japanese
Government its position on the subject of revision of agreements.

This Government had occasion in the course of a communication delivered to
the Japanese Government on April 29, 1934, to express its opinion that “treaties
can lawfully be modified or be terminated — but only by processes prescribed or
recognized or agreed upon by the parties to them”.

In the same communication this Government also said, “In the opinion of the
American people and the American Government, no nation can, without the
assent of the other nations concerned, rightfully endeavor to make conclusive
its will in situations where there are involved the rights, the obligations and the
legitimate interests of other sovereign states”. In an official and public state-
ment on July 16, 1937, the Secretary of State of the United States declared that
this Government advocates “adjustment of problems in international relations
by processes of peaceful negotiation and agreement”.

At various times during recent decades various powers, among which have
been Japan and the United States, have had occasion to communicate and to
confer with regard to situations and problems in the Far East. In the conducting
of correspondence and of conferences relating to these matters, the parties in-
volved have invariably taken into consideration past and present facts and
they have not failed to perceive the possibility and the desirability of changes in
the situation. In the making of treaties they have drawn up and have agreed
upon provisions intended to facilitate advantageous developments and at the
same time to obviate and avert the arising of friction between and among the
various powers which, having interests in the region or regions under reference,
were and would be concerned.

462

U. S. RELATIONS WITH CHINA

In the light of these facts, and with reference especially to the purpose and the
character of the treaty provisions from time to time solemnly agreed upon for
the very definite purposes indicated, the Government of the United States depre-
cates the fact that one of the parties to these agreements has chosen to embark —
as indicated both by action of its agents and by official statements of its authori-
ties — upon a course directed toward the arbitrary creation by that power by
methods of its own selection, regardless of treaty pledges and the established
rights of other powers concerned, of a “new order” in the Far East. Whatever
may be the changes which have taken place in the situation in the Far East
and whatever may be the situation now, these matters are of do less interest
and concern to the American Government than have been the situations which
have prevailed there in the past, and such changes as may henceforth take
place there, changes which may enter into the producing of a “new situation”
and a “new order”, are and will be of like concern to this Government. This
Government is well aware that the situation has changed. This Government
is also well aware that many of the changes have been brought about by the
action of Japan. This Government does not admit, however, that there is
need or warrant for any one Power to take upon itself to prescribe what shall
be the terms and conditions of a “new order” in areas not under its sovereignty
and to constitute itself the repository of authority and the agent of destiny in
regard thereto.

It is known to all the world that various of the parties to treaties concluded
for the purpose of regulating contacts in the Far East and avoiding friction
therein and therefrom — which treaties contained, for those purposes, various re-
strictive provisions — have from time to time and by processes of negotiation and
agreement contributed in the light of changed situations toward the removal
of restrictions and toward the bringing about of further developments which
would warrant in the light of further changes in the situation, further removals
of restrictions. By such methods and processes, early restrictions upon the
tariff autonomy of all countries in the Far East were removed. By such methods
and processes the rights of extraterritorial jurisdiction once enjoyed by Occi-
dental countries in relations with countries in the Far East have been given up
in relations with all of those countries except China; and in the years imme-
diately preceding and including the year 1931, countries which still possessed
those rights in China including the United States were actively engaged in ne-
gotiations — far advanced — looking toward surrender of those rights. All dis-
cerning and impartial observers have realized that the United States and others
of the “treaty powers” have not during recent decades clung tenaciously to their
so-called “special” rights and privileges in countries of the Far East but on the
contrary have steadily encouraged the development in those countries of insti-
tutions and practices in the presence of which such rights and privileges may
safely and readily be given up; and all observers have seen those rights and
privileges gradually being surrendered voluntarily through agreement by the
Powers which have possessed them. On one point only has the Government of
the United States, along with several other governments, insisted: namely, that
new situations must have developed to a point warranting the removal of “spe-
cial” safeguarding restrictions and that the removals be effected by orderly
processes.

The Government of the United States has at all times regarded agreements as
susceptible of alteration, but it has always insisted that alterations can right-
fully be made only by orderly processes of negotiation and agreement among
the parties thereto.

ANNEXES

463

The Japanese Government has upon numerous occasions expressed itself as
holding similar views.

The United States has in its international relations rights and obligations
which derive from international law and rights and obligations which rest upon
treaty provisions. Of those which rest on treaty provisions, its rights and
obligations in and with regard to China rest in part upon provisions in treaties
between the United States and China and in part on provisions in treaties be-
tween the United States and several other powers including both China and Japan.
These treaties were concluded in good faith for the purpose of safeguarding
and promoting the interests not of one only but of all of their signatories. The
people and the Government of the United States cannot assent to the abrogation
of any of this country’s rights or obligations by the arbitrary action of agents or
authorities of any other country.

The Government of the United States has, however, always been prepared
and is now prepared to give due and ample consideration to any proposals based
on justice and reason which envisage the resolving of problems in a manner
duly considerate of the rights and obligations of all parties directly concerned
by processes of free negotiation and new commitment by and among all of the
parties so concerned. There has been and there continues to be opportunity
for the Japanese Government to put forward such proposals. This Government
has been and it continues to be willing to discuss such proposals, if and when
put forward, with representatives of the other powers, including Japan and
China, whose rights and interests are involved, at whatever time and in whatever
place may be commonly agreed upon.

Meanwhile, this Government reserves all rights of the United States as they
exist and does not give assent to any impairment of any of those rights.

I avail myself [etc.] Joseph C. Grew

24

Statement by Secretary Hull , March 30, 19Jfi 29

In response to inquiries with regard to the attitude and position of the Govern-
ment of the United States in the light of the setting up at Nanking of a new
regime, the Secretary of State made a statement as follows :

“In the light of what has happened in various parts of China since 1931,
the setting up of a new regime at Nanking has the appearance of a further step
in a program of one country by armed force to impose its will upon a neighboring
country and to block off a large area of the world from normal political and
economic relationships with the rest of the world. The developments there
appear to be following the pattern of other regimes and systems which have
been set up in China under the aegis of an outside power and which in their
functioning especially favor the interests of that outside power and deny to
nationals of the United States and other third countries enjoyment of long-
established rights of equal and fair treatment which are legally and justly
theirs.

“The Government of the United States has noted statements of high officials
of that outside power that their country intends to respect the political inde-
pendence and the freedom of the other country and that with the development
of affairs in East Asia this intention will be demonstrated. To this Government

® Ibid., vol. II, p. 59.

464

IT. S. RELATIONS WITH CHINA

the circumstances, both military and diplomatic, which have attended the setting
up of the new regime at Nanking do not seem consistent with such an intention.

“The attitude of the United States toward use of armed force as an instrument
of national policy is well known. Its attitude and position with regard to
various aspects of the situation in the Far East have been made clear on
numerous occasions. That attitude and position remain unchanged.

“This Government again makes full reservation of this country’s rights under
international law and existing treaties and agreements.

“Twelve years ago the Government of the United States recognized, as did
other governments, the National Government of the Republic of China. The
Government of the United States has ample reason for believing that that Gov-
ernment, with capital now at Chungking, has had and still has the allegiance
and support of the great majority of the Chinese people. The Government of
the United States of course continues to recognize that Government as the
Government of China.”

25

Document Handed by Secretary Hull to the Japanese Ambassador
( Nomura ) on November 2 6 , 19J^1 30

Strictly Confidential,

Tentative and Without
Commitment

Washington, November 26, 19Jfl

Outline of Proposed Basis for Agreement Between the United States and

Japan

Section I

Draft Mutual Declaration of Policy

The Government of the United States and the Government of Japan both being
solicitous for the peace of the Pacific affirm that their national policies are
directed toward lasting and extensive peace throughout the Pacific area, that they
have no territorial designs in that area, that they have no intention of threaten-
ing other countries or of using military force aggressively against any neighbor-
ing nation, and that, accordingly, in their national policies they will actively
support and give practical application to the following fundamental principles
upon which their relations with each other and with all other governments are
based :

(1) The principle of inviolability of territorial integrity and sovereignty of
each and all nations.

(2) The principle of non-interference in the internal affairs of other countries.

(3) The principle of equality, including equality of commercial opportunity
and treatment.

(4) The principle of reliance upon international cooperation and conciliation
for the prevention and pacific settlement of controversies and for improvement of
international conditions by peaceful methods and processes.

The Government of Japan and the Government of the United States have
agreed that toward eliminating chronic political instability, preventing recurrent
economic collapse, and providing a basis for peace, they will actively support
and practically apply the following principles in their economic relations with
each other and with other nations and peoples :

" Ibid., p. 768.

ANNEXES

465

(1) The principle of non-discrimination in international commercial relations.

(2) The principle of international economic cooperation and abolition of
extreme nationalism as expressed in excessive trade restrictions.

(3) The principle of non-discriminatory access by all nations to raw material
supplies.

(4) The principle of full protection of the interests of consuming countries
and populations as regards the operation of international commodity agreements.

(5) The principle of establishment of such institutions and arrangements
of international finance as may lend aid to the essential enterprises and the
continuous development of all countries and may permit payments through
processes of trade consonant with the welfare of all countries.

Section II

Steps To Be Taken by the Government of the United States and by the Govern-
ment of Japan

The Government of the United States and the Government of Japan propose
to take steps as follows :

1. The Government of the United States and the Government of Japan will
endeavor to conclude a multilateral non-aggression pact among the British
Empire, China, Japan, the Netherlands, the Soviet Union, Thailand and the
United States.

2. Both Governments will endeavor to conclude among the American, British,
Chinese, Japanese, the Netherland and Thai Governments an agreement where-
under each of the Governments would pledge itself to respect the territorial
integrity of French Indochina and, in the event that there should develop a
threat to the territorial integrity of Indochina, to enter into immediate consulta-
tion with a view of taking such measures as may be deemed necessary and
advisable to meet the threat in question. Such agreement would provide also
that each of the Governments party to the agreement would not seek or accept
preferential treatment in its trade or economic relations with Indochina and
would use its influence to obtain for each of the signatories equality of treatment
in trade and commerce with French Indochina.

3. The Government of Japan will withdraw all military, naval, air and police
forces from China and from Indochina.

4. The Government of the United States and the Government of Japan will
not support — militarily, politically, economically — any government or regime
in China other than the National Government of the Republic of China with
capital temporarily at Chungking.

5. Both Governments will give up all extraterritorial rights in China, including
rights and interests in and with regard to international settlements and con-
cessions, and rights under the Boxer Protocol of 1901.

Both Governments will endeavor to obtain the agreement of the British and
other governments to give up extraterritorial rights in China, including rights
in international settlements and in concessions and under the Boxer Protocol
of 1901.

6. The Government of the United States and the Government of Japan will
enter into negotiations for the conclusion between the United States and Japan
of a trade agreement, based upon reciprocal most-favored-nation treatment and
reduction of trade barriers by both countries, including an undertaking by the
United States to bind raw silk on the free list.

U. S. RELATIONS WITH CHINA

466

7. The Government of the United States and the Government of Japan will,
respectively, remove the freezing restrictions on Japanese funds in the United

States and on American funds in Japan.

8. Both Governments will agree upon a plan for the stabilization of the dollar-
yen rate, with the allocation of funds adequate for this purpose, half to be
supplied by Japan and half by the United States.

9. Both Governments will agree that no agreement which either has concluded
with any third power or powers shall be interpreted by it in such a way as to
conflict with the fundamental purpose of this agreement, the establishment and
preservation of peace throughout the Pacific area.

10. Both Governments will use their influence to cause other governments to
adhere to and to give practical application to the basic political and economic
principles set forth in this agreement.

26

Mastev Lend-Lease Agveement Between the United States and China ,
Signed at Washington June 2, 191 $ 31

Whereas the Governments of the United States of America and the Republic of
China declare that they are engaged in a cooperative undertaking, together with
every other nation or people of like mind, to the end of laying the bases of a just
and enduring world peace securing order under law to themselves and all nations ;

And whereas the Governments of the United States of America and the Republic
of China, as signatories of the Declaration by United Nations of January 1, 1942,
have subscribed to a common program of purposes and principles embodied in the
Joint Declaration made on August 14, 1941 by the President of the United States
of America and the Prime Minister of the United Kingdom of Great Britain and
Northern Ireland, known as the Atlantic Charter ;

And whereas the President of the United States of America has determined,
pursuant to the Act of Congress of March 11, 1941, that the defense of the
Republic of China against aggression is vital to the defense of the United States
of America ;

And whereas the United States of America has extended and is continuing to
extend to the Republic of China aid in resisting aggression ;

And whereas it is expedient that the final determination of the terms and
conditions upon which the Government of the Republic of China receives such
aid and of the benefits to be received by the United States of America in return
therefor should be deferred until the extent of the defense aid is known and
until the progress of events makes clearer the final terms and conditions and
benefits which will be in the mutual interests of the United States of America
and the Republic of China and will promote the establishment and maintenance
of world peace ;

And whereas the Governments of the United States of America and the Republic
of China are mutually desirous of concluding now a preliminary agreement in
regard to the provisions of defense aid and in regard to certain considerations
which shall be taken into account in determining such terms and conditions and
the making of such an agreement has been in all respects duly authorized, and all
acts, conditions and formalities which it may have been necessary to perform,
fulfil or execute prior to the making of such an agreement in conformity with the

« 56 Stat. 1494.

ANNEXES 467

laws either of the United States of America or of the Republic of China have been
performed, fulfilled or executed as required ;

The undersigned, being duly authorized by their respective Governments for
that purpose, have agreed as follows :

Article I

The Government of the United States of America will continue to supply the
Government of the Republic of China with such defense articles, defense services,
and defense information as the President of the United States of America shall
authorize to be transferred or provided.

Article II

The Government of the Republic of China will continue to contribute to the
defense of the United States of America and the strengthening thereof and will
provide such articles, services, facilities or information as it may be in a position
to supply.

Article III

The Government of the Republic of China will not without the consent of the
President of the United States of America transfer title to, or possession of, any
defense article or defense information transferred to it under the Act of March
11, 1941 of the Congress of the United States of America or permit the use thereof
by anyone not an officer, employee, or agent of the Government of the Republic
of China.

Article IV

If, as a result of the transfer to the Government of the Republic of China of
any defense article or defense information, it becomes necessary for that Gov-
ernment to take any action or make any payment in order fully to protect any
of the rights of a citizen of the United States of America who has patent rights
in and to any such defense article or information, the Government of the Repub-
lic of China will take such action or make such payment when requested to do
so by the President of the United States of America.

Article V

The Government of the Republic of China will return to the United States of
America at the end of the present emergency, as determined by the President of
the United States of America, such defense articles transferred under this
Agreement as shall not have been destroyed, lost or consumed and as shall be
determined by the President to be useful in the defense of the United States of
America or of the Western Hemisphere or to be otherwise of use to the United
States of America.

Article VI

In the final determination of the benefits to be provided to the United States
of America by the Government of the Republic of China full cognizance shall be
taken of all property, services, information, facilities, or other benefits or con-
siderations provided by the Government of the Republic of China subsequent to
March 11, 1941, and accepted or acknowledged by the President on behalf of the
United States of America.

468

U. S. RELATIONS WITH CHINA

Article VII

In the final determination of the benefits to be provided to the United States
of America by the Government of the Republic of China in return for aid fur-
nished under the Act of Congress of March 11, 1941, the terms and conditions
thereof shall be such as not to burden commerce between the two countries, but
to promote mutually advantageous economic relations between them and the
betterment of world-wide economic relations. To that end, they shall include
provision for agreed action by the United States of America and the Republic
of China, open to participation by all other countries of like mind, directed to
the expansion, by appropriate international and domestic measures, of produc-
tion, employment, and the exchange and consumption of goods, which are the
material foundations of the liberty and welfare of all peoples ; to the elimination
of all forms of discriminatory treatment in international commerce; to the
reduction of tariffs and other trade barriers ; and, in general, to the attainment
of economic objectives identical with those set forth in the Joint Declaration
made on August 14, 1941, by the President of the United States of America and
the Prime Minister of the United Kingdom.

At an early convenient date, conversations shall be begun between the two
Governments with a view to determining, in the light of governing economic con-
ditions, the best means of attaining the above-stated objectives by their own
agreed action and of seeking the agreed action of other like-minded Governments.

Article VIII

This Agreement shall take effect as from this day’s date. It shall continue in
force until a date to be agreed upon by the two Governments.

Signed and sealed at Washington in duplicate this second day of June, 1942.

FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA

Cordell Hull [seal]

Secretary of State

of the United States of America

FOR THE GOVERNMENT OF THE REPUBLIC OF CHINA

Tse Vuno Soono [seal]

Minister for Foreign Affairs
of China

27 (a)

Secretary Stimson to the Chinese Minister for Foreign Affairs

( Soong )

Washington, January 29, 1942
My dear Mr. Soong : In furtherance of the plan for sending to the General-
issimo a high ranking United States Army officer to act as his Chief of Staff and
as Commanding Officer of United States Army forces in that region, it is neces-
sary to have certain points quite clearly understood, so that essential arrange-
ments with the British Chiefs of Staff may be completed. In accordance with
our previous conversations and correspondence on this subject, it is my under-
standing that the functions of the United States Army Representative are to be
generally as follows:

ANNEXES

469

To supervise and control all United States defense-aid affairs for China.
Under the Generalissimo to command all United States forces in China and
such Chinese forces as may be assigned to him.

To represent the United States Government on any International War
Council in China and act as the Chief of Staff for the Generalissimo.

To improve, maintain and control the Burma Road in China.

If the above represents the understanding and agreement of the Generalissimo
on the functions of the United States Army Representative, the British will agree
to cooperate in Burma and India so as to promote the effectiveness of the United
States Army Representative’s efforts.

A particular point involving personnel on which clarification is sought is as
follows :

The message from the Generalissimo dated January 21st stated that the
United States representative should bring with him an Air officer of high rank.
We were prepared to make such an assignment but have since learned, infor-
mally, that the Generalissimo might like to retain Colonel ChennaUlt as the
highest ranking American Air officer in China. If this should be the case, the
arrangement will be quite agreeable to the War Department and Chennault’s
promotion to the grade of Brigadier General will be accomplished at the proper
time.

I request that you give me an early reply since we are making every effort to
place the general plan into prompt execution.

Sincerely yours,

Henry L. Stimson

27 (b)

The Chinese Minister for Foreign Affairs (Soong) to Secretary of

War Stimson

Washington, January SO , 1942

My dear Mr. Stimson : I have to acknowledge with thanks the receipt of
your letter of January 29th and wish to confirm our understanding that the
functions of the United States Army Representative are to be generally as
follows :

To supervise and control all United States defense-aid affairs for China.

Under the Generalissimo to command all United States forces in China and
such Chinese forces as may be assigned to him.

To represent the United States Government on any International War
Council in China and act as the Chief of Staff for the Generalissimo.

To improve, maintain and control the Burma Road in China.

With reference to the appointment of an Air officer of high rank, the Gen-
eralissimo would indeed like if possible to retain Colonel Chennault as the
highest ranking American Air officer in China, because of his signal services to
both our countries, and much appreciates your kind consideration in the matter.

I am glad to learn of your intention to promote Colonel Chennault to the
grade of Brigadier General in due course.

Yours sincerely,

T. V. Soong

470

U. S. RELATIONS WITH CHINA

28

Five Hundred Million Dollar Financial Aid of 10^2 and Other
Wartime Financial Relationships

Introduction

The documents and other materials appearing in this annex provide back-
ground (a) on the negotiations and discussions leading up to the passage of the
Joint Resolution of February 7, 1942, authorizing financial aid to China (Public
Law 442, 77th Cong., 56 Stat. 82) and the signing of the financial aid agreement
of March 21, 1942, pursuant thereto by the Governments of the United States
and the Republic of China, (b) on the uses of the financial aid provided by the
United States and (c) on negotiations concerning the financing of expenditures
in Chinese currency by or on behalf of the United States Army in China during
the war.

Transfers to Chinese accounts from the financial aid authorized in 1942 were as
follows :

Date of Transfer

Purpose

A mount
( millions )

1. April 15, 1942

Establishment of fund for redemption of U. S. dollar
security issues.

$200

2. February 1, 1943

Purchase of gold

20

3. March 2, 1943

Purchase of bank notes and supplies

20

4. October 13, 1944

Purchase of gold

20

5. May 22, 1945

Purchase of gold

60

6. June 12, 1945

Purchase of gold

60

7 Julv 18 1045

Purchase of textiles

10

8. July 27, 1945

Purchase of gold

60

9. August 3, 1945

Purchase of bank notes

35

10. February 7, 1946

Purchase of textiles

1.5

11. March 13, 1946

Purchase of raw cotton

13.5

Total

500!0

On March 24, 1941, the Chinese Government announced in Chungking its plan
to issue U.S. $100 million of 4 percent ten year National Government Allied
Victory Bonds and U.S. $100 million of one, two and three year savings cer-
tificates with interest at 3 percent, 3% percent and 4 percent, respectively.
Following the announcement the Chinese Government requested the immediate
transfer of 200 million dollars for the establishment of a fund for the redemption
of these issues. As noted above, the transfer was made on April 15, 1942.

These issues were denominated in United States dollars, were sold for Chinese
currency and were repayable at maturity in United States dollars or in Chinese
currency at the option of the holder. It is believed that the most of the savings
certificates were redeemed in United States dollars. Provision for U.S. dollar
redemption of the ten year Allied Victory bonds, however, was revoked in 1946.
except for registered bond holders outside China. It is not known how many
bonds of this issue have been redeemed in United States dollars.

Of the 220 million dollars in gold purchased by China from the 500 million
dollar credit of 1942, 158.6 million dollars had been shipped to China by V-J
Day. Shipments in 1943 amounted to 10.5 million dollars and in 1944 to 15.2

ANNEXES

471

million dollars, and the remainder was shipped in the first eight months of
1945. From late 1943 to June 30, 1945, the Chinese Government sold gold to the
public for Chinese currency in an effort to combat inflation. Approximately 100
million dollars in gold (valued at $35 per ounce) was sold up to June 30, 1945,
when gold sales were temporarily suspended. Some gold was sold on an advance
basis. On June 30, 1945, the Chinese Government imposed a tax, payable in gold
or Chinese currency on such sales as had not then been completed. Data are
lacking as to how much gold was retained by this device.

Gold sales were resumed in September 1945 and terminated in February 1947
and were resumed intermittently in 1948 and 1949. Data are unavailable as to
the amount of gold sold since September 1945.

Payments to the Chinese Government for Chinese currency supplied to or
expended on behalf of the United States Army during the war were as follows :

( Millions
of dollars)

1. Through February 1944 at the official rate of 20 yuan equals US $1 155

2. Lump sum settlement for advances in 1944 through September 210

3. Lump sum settlement for fourth quarter, 1944 45

Settlement for advances of Chinese currency in 1945 and up to August 30, 1940,
was provided in the Surplus Property Sales Agreement of the latter date between
the United States and China.

The documents which follow are arranged substantially in chronological order.

28 (a)

The Ambassador in China (Gauss) to Secretary Hull

Chungking, December SO , 19^1

Today I called on General Chiang at his request. After briefly reviewing recent
measures for political and military collaboration with the United States and
Great Britain, he passed on to the economic situation in substantially the fol-
lowing terms:

While there is no lack of confidence on the part of intelligent Chinese that the
anti-Axis Powers will be victorious in the end, there is such lack of confidence
among the uninformed masses, the sceptics, and the associates of the Chinese
traitors. Morale has been affected by the early Japanese successes and by the
way the Japanese have exploited them for purposes of propaganda. Specific
mention was made of the radio appeal for Asiatic solidarity against westerners
which was recently made to Chiang by the Prime Minister of Thailand. China
can contribute fighting man power to the common cause but the United States
and Great Britain must give China financial help in order to prevent further
deterioration in economic fundamentals, loss of confidence in the Chinese cur-
rency, etc. Such help would do much toward strengthening morale and to
silence the critical and doubtful elements. The credit he wants is about one
billion United States dollars, of which he has through the British Ambassador
asked the British Government to provide about one-half or one hundred million
pounds, expecting America to provide the rest or about five hundred million
dollars.

Chiang asked that in transmitting his request to my Government I should em-
phasize the importance such aid at this time would have to Chinese morale in
overcoming Japanese propaganda and because of the needed support it would
give to the economic structure of China. He pointed out that the present cur-

844538 — 49 33

472

U. S. RELATIONS WITH CHINA

rency issue exceeds thirteen billion paper dollars and that the 1942 budget shows
a deficit of at least nine billion Chinese dollars, and said that the proposed loan
would be used partially to support a domestic bond issue intended to curb
inflation.

I replied that of course I would faithfully and immediately report his request
and his discussion to my Government which I was confident would be disposed to
consider with sympathy any reasonable proposals to aid China in resisting Japan.
However, I suggested that to assist consideration of his request and in ap-
proaching Congress for legislation necessary to authorize participation by the
United States in a credit or loan to China, a carefully prepared outline of the
needs of the situation on the basis of the studies and recommendations of the
financial advisers and experts of the Chinese Government should be submitted
together with an outline of the measures contemplated to be undertaken to meet
the situation including the measures which China will take to help herself. I
explained that what I was suggesting was not an outline of the terms of any
proposed loan but an outline of the needs of the situation and of the definite
measures which should be taken to meet these needs.

Chiang said that experts and advisers were working out plans for the use of
the proposed credit or loan but that he desired me in the meanwhile to make the
proposal to my Government. The proposals for application of the loan could be
put forward when the loan is assured.

I learned from the British Ambassador that he was approached for a loan of
one hundred million pounds from Great Britain and has referred the matter to his
Government. He equally lacked any specific proposals as to how the loan, if
granted, would be applied to the difficulties of the economic situation of China ;
Chiang had said that he considered it an urgent necessity that he should be en-
abled to demonstrate to the Chinese people and armies that the British Govern-
ment had sufficient faith in victory to give quick and effective aid to China.

28 (b)

A . Manuel Fox , U.S. Member on the Chinese Stabilization Board , to
Secretary of the Treasury M orgenthau

Chungking, January S , 1942

(A) In Yunnanfu and Chungking I find a great deal of talk of a loan to
China by Great Britain and the United States. I am informed that the subject
has already been raised with each of the Governments by the Generalissimo.
In Chinese Government circles the talk is of a loan by Britain of one hundred
million pounds and a loan of the United States amounting to five hundred million
United States dollars.

(B) For some time prior to the outbreak of the war I have felt that a new
loan to China was needed due to the extreme gravity of the internal economic
situation here. My feeling has been reinforced since December 8 in view of
(1) the effect on Chinese political opinion of the initial Japanese successes;
and (2) the perceptible strengthening of defeatist elements in Chinese Gov-
ernment circles; and (3) the probable effect of temporary Japanese successes
in southeast Asia in the near future. In this situation in order to keep China
going as an Anti- Axis power a substantial loan (the bigger the better) would
be invaluable. An argument in favor of making the loan as big as possible is
the very fact that the larger portion of such a loan could not be used.

ANNEXES

473

(C) The internal economic effects of such a loan would be beneficial, after
the first psychological effects have worn off, although because of the physical
difficulties in the importing of goods they might not be commensurate with its
size. The fact that the political advantages would be very great is of more
importance. A loan might make all the difference between a Chinese defeatist
victory (lukewarm as they are) and the neutralization of the defeatists. The
actual outlay would be much smaller than the nominal amount of the loan, as
already indicated. It would be desirable to use the loan as an occasion for
insisting on strengthening and improving the Central Bank and the Chinese
banking system, but the political effects of the loan could be reinforced by not
requiring any specific guarantees.

(D) The following uses could be made of the loan: (1) To retard the infla-
tionary spiral by guaranteeing an attractive issue of Government bonds to absorb
fapi and make it unnecessary for the future that the Government of China issue
more currency to cover its budgetary deficit; (2) To insure the maintenance of
an inflow of imports by promoting trade with India (as long as the Burma
Road remains open) and with Russia. I am not in a position to evaluate from
a political standpoint the aspects of financing trade with Russia but certainly
there would be an accrual of economic advantages; (3) the financing of loans,
if possible, for the promotion of the internal small scale production which is
greatly needed and for agricultural production. Retardation of rise in prices
would be aided by the effects of both (2) and (3) in increasing the supply of
goods; and perhaps (4) the provision of foreign exchange backing for the note
issue which would temporarily affect beneficially internal confidence in the cur-
rency. If it were possible to link the Stabilization Board in some way with the loan
it might be desirable to do so because, if for no other reason, it might be easier
for the Board than for the Chinese Government itself to secure confidence.

(E) The Board has received a scheme submitted by the Ministry of Finance
which proposes that its remaining U.S. dollar and sterling assets be used as a
guarantee fund for an issue of Chinese Government bonds on the lines of I (D).
I see three objections to this : 1. The amount involved would not be sufficient
to contribute substantially to the absorption of fapi ; 2. taking into consideration
the terms of agreements instituting the fund, there is some doubt as to the legality
of the suggested procedure; 3. The Board would be deprived of its function of
providing foreign exchange for imports. (This function must be performed so
long as imports are possible.)

28 (c)

The Anibassador in China {Gauss) to Secretary Hull

Chungking, January 8, 191$

I have the honor to refer to my message on the subject of finance-economic con-
ditions in China and to my earlier messages in regard to the Chinese Government’s
request for an American credit of half a billion dollars and a British credit for
one hundred million pounds, and to enclose for the Department’s information
(1) a memorandum of my conversation with General Chiang on December 30
when he asked me to place his request for a loan before the American Govern-
ment, 83 (2) paraphrase of a telegram sent by the British Ambassador to his govern-

"See annex 28 (a).

474

U. S. RELATIONS WITH CHINA

ment on the reference subject, 3 * (3) copy of a memorandum of Mr. Vincent’s con-
versation with Mr. Hall-Patch, financial attache of the British Embassy, 33 and
(4) copy of a confidential memorandum prepared by Mr. Chang Chia-ngau, Minis-
ter of Communications, for General Chiang and Dr. Kung in regard to the financial
situation in China. 33

I had suggested previously that the Congress might be asked to authorize a
credit to China up to a specified amount for utilization under agreements or
arrangements to be made by the executive branch of the Government after the
presentation and consideration of definite proposals to be put forward by the
Chinese Government.

I am convinced that credits of the magnitude requested by General Chiang (a
total of about one billion U. S. dollars) are out of all proportion to the needs of
the situation viewed from the political-psychological or the finance-economic
standpoint — or both. While, in the absence of any definite proposals supported
by factual data, only a rough estimate can be made, I feel that credits (American
and British) of at most no more than a half billion dollars would generously
satisfy all the requirements of the situation, psychological and financial, and
that credits in excess of such an amount would be misleading and invite attempts
at misuse. They would be misleading in that they might lead to popular expecta-
tion of practical results commensurate with the size of the credits, which would
not be the case, because in present circumstances there is no practicable way in
which such large credits could be effectively and legitimately utilized. They would
invite attempts at misuse on the part of self-seeking banking and government
elements who would find it difficult to resist the temptation to draw on such
excessive credits for their own gain.

Aside from the broad idea of supporting government credit and retarding cur-
rency inflation, I am not informed with regard to any program for using the
credits requested. Conversations with Dr. Fox and with Sir Otto Niemeyer lead
me to believe that the Chinese Government has not formulated plans for coping
with the serious internal situation and is therefore hardly in a position to in-
dicate with any exactness the use it expects to make of desired foreign credits.
Mr. Chang Chia-ngau sets forth in very general terms the need and usefulness of
an internal bond issue supported by foreign credits and the Vice Ministers of
Finance speak of “reconstruction” even more vaguely, and unconvincingly in so
far as immediate needs are concerned. These, I fear, are examples illustrative
of the government approach to the problem. The attitude and ideas of the Min-
ister of Finance and the Minister of Economics are no more encouraging.

In the absence of technical studies on the subject, it is difficult for the Embassy
to arrive at even a relatively precise idea of the reasonably constructive uses to
which the credit might be put. However, it may serve some purpose to indicate
in purely suggestive terms the Embassy’s thoughts in the matter based on general
observation.

A domestic bond issue, supported by foreign credits, would seem to be
theoretically sound and advisable. No approximately definite figures as to the
amount of such bonds that might be marketed are obtainable. The figure of two
billion Chinese dollars is the one most often mentioned and under favorable
conditions the amount might increase to four billions. Distribution primarily
among the investing public would seem to be essential to accomplish the ends
desired ; that is, the withdrawal of currency from circulation and the release of
goods now being hoarded. Obviously no public benefit would result from the

Not printed.

ANNEXES 475

government banks’ exchanging currency in their vaults and newly issued cur-
rency for bonds backed by foreign currency at a fixed rate.

Encouragement of agricultural and small industrial production is wanting
and badly needed. If it is feasible to do so, a portion of the credit might be used
to support loans or grants to agricultural interests for the reclamation and
improvement of farm land and to home and community industrial enterprises.
The Chinese Government, notwithstanding the obvious advantages of such action,
has been slow and reluctant to give assistance but it might be induced to do so
if credits were set aside available only to support loans or grants of the kind.
Only a very rough guess can be made as to the amount that might be earmarked
for this purpose. Although there is slight likelihood that it would all be used,
one hundred million dollars might be designated for the purpose of supporting
grants or loans up to a billion Chinese dollars for small scale production and a
like amount for agricultural improvement.

Dr. Fox, suggests, 84 inter alia ( to the Secretary of the Treasury ) , use of a portion
of the credit to promote imports from Russia into China. (He makes a similar
suggestion with regard to imports from India) . I am not in a position to evaluate
the practical features of such a plan but I know that any opportunity to encour-
age the inflow of goods into China at this time should not be overlooked. One
hundred million dollars of the credit might be set aside for this purpose in the
hope that some portion could be used to accomplish the desired results.

The Central Executive Committee of the Kuomintang, at its meeting in De-
cember last, passed a resolution calling for “The execution of a land policy and
the institution of government machinery to deal exclusively with land registra-
tion and the equalization of land ownership. . Various Kuomintang organs
and committees have in the past passed similar resolutions, the effect of which
has been inconsequential. To encourage implementation of the resolution quoted
above, a practical step would seem to be the earmarking of a portion of the credit
(one hundred million dollars is suggested as a generous estimate) for the support
of the necessary financing of the agrarian reform contemplated.

The Generalissimo stresses the psychologically beneficial effect of a large
political loan or credit at this time but he offers no program for its use, stating
that a program will be forthcoming after the credit is given. I concur in his
statement as to the need and the effect of a credit (while differing with regard
to the amount) but I am convinced of the advisability ? from the Chinese point of
view as well as our own, of earmarking portions of the credit for certain pur-
poses. Designation of portions of the credit for support of measures suggested
above may be ill-received in banking and some governmental quarters but I be-
lieve that, viewing the situation as a whole from the standpoint of general public
welfare and from the standpoint of strengthening the country’s economic struc-
ture for continued resistance to Japan, it will produce more constructive results
than the granting of a large lump credit or loan without designation as to use.
It is well not to overlook the beneficial psychological effect upon the Chinese
people of support for measures mentioned above (in particular measures for in-
creased production and agrarian reform) ; and the practical effects of even par-
tial application and implementation of such measures would fully justify our
support. Probably no more than half the amounts suggested would be effectively
used for the purposes mentioned and no doubt there would be administrative
difficulties and inefficiencies, but even so, urgent requirements would at least be
partially met — production of commodities would be increased (thereby remov-

84 See annex 28 (b).

476

U. S. RELATIONS WITH CHINA

ing some of the curse from currency inflation) and a start towards long overdue
agrarian reform would be made. And those elements in China which have been
urging such measures and the infinitely greater number that would benefit there-
from would be encouraged and strengthened in their resolve to support active
prosecution of the war against Japan, having received a practical demonstra-
tion that they are fighting for something. The alternative is purchase of the
support of the retrogressive, self-seeking, and, I fear, fickle elements in and
intimately associated with the government through the granting of a “free”
credit, for I am convinced that a substantial credit should be granted.

I cannot too strongly emphasize my feeling that we should clearly and force-
fully make known to the Chinese Government, in connection with financial aid
that we may extend to China, our opposition to the use of any portion of such
aid, directly or indirectly for the financing of expensive and harmful monopolies.
This is a matter which calls for no clarification on my part in as much as I am
sure that the Department is fully aware of the dangers of the situation.

28 (d)

The Chinese Minister of Finance {Rung) to Secretary of the Treasury

Morgenthau

Chungking, January 9 , 1942

China has been fighting a war of resistance with heavy strain on her resources
and with untold sacrifices for four and one-half years. At the present time,
China’s economic and financial situation is in a precarious condition. The live-
lihood of the people is difficult, because of increasing prices; and the brave
soldiers at the front are ill-clothed and ill-fed. It is necessary to retain control
of currency and prices without production being curtailed. It would be im-
possible to carry on the war if the already very critical economic and financial
front should collapse.

Since the survival and existence of democratic countries are interdependent,
present world war developments render it imperative for these countries to pool
their economic and military resources. Consequently, I appeal to you for a polit-
ical war loan of five hundred million dollars. Great Britain has also been
approached by us for a loan of one hundred million pounds for the purpose of
covering the total sum required. We are awaiting a reply from Great Britain.
If you will lead, I am confident they will follow your example. This loan is re-
quested for the purpose of replenishing reserve so as to restore confidence in
currency, to offset diminished imports by increased production, to restrain prices,
and to meet additional urgent war requirements. There are sound justifications
for the loan on economic grounds, and also from the standpoint of joint military
front. Frankly, however, my reason for approaching you is political above all ;
and the import of a loan of this nature is even more important than the Lend-
Lease Bill’s import. The essence of such a move is timeliness, so as to demon-
strate that China’s confidence in the allied powers is matched by equal confidence
in China of the allied powers, in the most crucial months of emergency imme-
diately before us. In addition to electrifying public opinion, early announce-
ment of the loan would have an immediate effect throughout Asia, including our
common enemy, Japan. My appreciation of your continuing keen interest in
China provides me with confidence in sending you this message.

ANNEXES

477

28 (e)

Secretary Hull to Secretary of the Treasury Morgenthau

Washington, January 10, 194%

My dear Mr. Secretary: Reference is made to Generalissimo Chiang Kai-
shek’s request of December 30, 1941 that the United States Government provide
China with $500,000,000 of financial help in order to support Chinese morale
and prevent the effects of further depreciation of the Chinese currency and
deterioration of the fundamental economic situation in China.

The Generalissimo’s proposal has been given very careful consideration. I
feel that, as an act of wartime policy and to prevent the impairment of China’s
military effort which would result from loss of confidence in Chinese cur-
rency and depreciation of its purchasing power, it is highly advisable that
the United States extend financial assistance to the Government of China in
amounts up to $300,000,000 at the present time. I believe that a determination
of this Government’s policy to this effect need not await ascertainment of the
attitude to be taken by Great Britain on the similar Chinese proposal with
reference to sterling credits.

I feel that the greatest possible expedition in reaching a position where an
announcement can be made is highly important. I feel also that it would seem
to be highly desirable that the British Government be kept currently informed
of our views and decisions in regard to this matter in order that the British
Government may be afforded opportunity, should it so desire, to take simul-
taneous and comparable action.

Sincerely yours,

Cordell Hull

28 (f)

Generalissimo Chiang Kai-shek to Secretary of the Treasury

Morgenthau

Chungking, llfth January , 1942

Dear Mr. Secretary: I have requested Mr. Fox to inform you in person of
China’s present financial and economic realities and needs. Throughout these
critical years your support of China’s cause has been most enthusiastic and
sympathetic. You are now naturally more than ever concerned with our prob-
lems and difficulties, especially at the moment when our interests and destiny
are absolutely identical.

If China’s finance and economics fail to be improved and strengthened, our
power of resistance against Japanese aggression will be so adversely affected
that the entire war front of the allied Powers will inevitably suffer. My Govern-
ment and people earnestly hope that your Government will give us the speediest
and most effective assistance, and that, in compliance with my request and in
accordance with the plan prepared by our Minister of Finance, you will exert
your utmost to procure the desired loan for China. In view of actual war-time
requirements this loan is not large.

I feel certain that in his verbal report Mr. Fox will enter fully into the military,
financial and economic situations in China, and will explain in detail what bear-
ing they have in the attainment of our common victory.

With best wishes,

Yours sincerely,

Chiang Kai-shek

478

U. S. RELATIONS WITH CHINA

28 (g)

The Chinese Minister for Foreign Affairs {Soong) to Secretary of
the Treasury Morgenthau

[Washington,] January 21 , 19J&

My Dear Mb. Secretary : During your absence from Washington I received
the enclosed message for you from the Generalissimo.

Since Mr. Fox is due to arrive in Washington shortly, it occurs to me that you
may like to have an opportunity of seeing him and hearing from him of the
situation in China before you renew discussions with me. However I am at
your disposal at any time, should you wish to see me earlier.

Sincerely yours,

T. V. Soong

[Enclosure]

The Generalissimo deeply appreciates Secretary Morgenthau’s efforts which
have materialized in a proposal that the U. S. Government would undertake to
pay for the maintenance of part of the Chinese army in U. S. Dollar notes. After
careful consideration, however, he doubts whether this scheme is practicable.
Payment of Chinese soldiers in U. S. currency would tend to create a cleavage
between the army and the general economic structure in China which may actually
hasten the collapse of the Chinese currency. Before Mr. Fox left Chungking
the Generalissimo had a long discussion with him in which he pointed out a
number of reasons why he considered the scheme difficult of application and
which he asked Mr. Fox to convey to Secretary Morgenthau.

The Generalissimo urgently requests that careful consideration be given to
his original proposal that the United States grant to China a political loan of
500 million U. S. dollars, which would be the only means to prevent an impending
economic collapse. This loan should be regarded in the light of an advance to
an ally fighting against a common enemy, thus requiring no security or other pre-
arranged terms as to its use and as regards means of repayment.

28 (h)

Minutes 35 of a Meeting in the Office of the Secretary of State ,
January 30, 191$

[Extract]

Present : Secretary Hull

Secretary Morgenthau
Dr. Viner
Mr. White
Later Joined By: Mr. Berle

Mr. Hombeck
Mr. Hamilton
Mr. Feis

Secretary Hull asked for opinions as to which of the several methods suggested
by the Treasury would be the best medium for giving help. He said he himself was
not interested in the method. He said that should be the Treasury's business.

M Prepared at the Treasury Department.

ANNEXES 479

He was solely interested in seeing that China did get aid in the present critical
situation.

Mr. Hornbeck stated that he thought the ideal method of helping would be ft
Congressional statute providing for an extension of financial aid to China. He
said that might, however, cause undue delay. He was not certain that legislation
was the most practical method of approaching the problem. He stated that he
did not think the matter was so urgent or acute that a matter of days were
critical, but that if it were to take several weeks for Congress to pass such legis-
lation, it would be too late. If legislation could be passed in a few days he
favored legislation.

Mr. Hornbeck went on to say that he thought that the sum should be $500
million instead of the $300 million which Secretary Hull had indicated in his
letter to Secretary Morgenthau. Mr. Hornbeck thought that a reduction in the
portion which the United States was prepared to give to $300 million would be too
great a reduction from the sum which Chiang-Kai-Shek was asking. He felt
Chiang-Kai-Shek should be given what he asked for, namely $500 million from
the United States. Secretary Morgenthau agreed with Hornbeck, as did the
others, and it was therefore decided that the sum which they would recommend
would be $500 million.

28 (i)

Secretary of the Treasury Morgenthau to Generalissimo Chiang

Kai-shek

Washington, February 16, 19 42.

Dear Generalissimo Chiang : I read with great interest your letter of Janu-
ary 14, 1942, transmitted to me in person by Mr. Fox. The unanimity and prompt-
ness with which my Government responded to the appeal for financial assistance
is evidence that your confidence in the support of the United States is well
founded. It also demonstrated that the American people have faith in the
Chinese people and know that you and your Government will continue to play a
vital part in the common effort against our foes.

I wish you to know that here in the United States Generalissimo Chiang
Kai-shek is looked upon as the personification of the heroism and courage of
the Chinese people who, under the most difficult circumstances and at tremen-
dous odds, have successfully defended their country against invasion. No one
doubts in the United States that your leadership has secured for China the unity
of purpose and will, without which China would have fallen victim to the Japa-
nese aggressor. Moreover, the people of the United States clearly understand
that China’s unceasing resistance will not only bring freedom and independence
to itself, but will play a major part in achieving victory and peace for free men
everywhere.

Sincerely yours,

H. Morgenthau, Jr.

28 (j)

Initial Draft of United States-Chma Financial Aid Agreement 36

Whereas, the Governments of the United States of America and of the Republic
of China are engaged, together with other nations and peoples of like mind, in a

30 Handed to the Chinese Minister for Foreign Affairs, T. V. Soong, by the Treasury
Department, Feb. 21, 1942.

480

U. S. RELATIONS WITH CHINA

cooperative undertaking against common enemies, to the end of laying the bases
of a just and enduring world peace securing order under law to themselves and
all nations, and

Whereas, the United States and China are signatories to the Declaration of
United Nations of January 1, 1942, which declares that “each government
pledges itself to employ its full resources, military or economic, against those
members of the Tripartite Pact and its adherents with which such government is
at war’* ; and

Whereas, the Congress of the United States, in unanimously passing Public
Law No. 442, approved February 7, 1942, has declared that financial and economic
aid to China will increase China’s ability to oppose the forces of aggression and
that the defense of China is of the greatest possible importance, and has author-
ized the Secretary of the Treasury of the United States, with the approval of the
President, to give financial aid to China, and
Whereas, such financial aid will enable China to strengthen greatly its war
efforts against the common enemies by helping China to

(1) strengthen its currency, monetary, banking and economic system;

(2) finance and promote increased production, acquisition and distribution of
necessary goods ;

(3) retard the rise of prices, promote stability of economic relationships, and
otherwise check inflation ;

(4) prevent hoarding of foods and other materials;

(5) improve means of transportation and communication;

(6) effect further social and economic measures which will safeguard the unity
of the Chinese people ; and

(7) meet military needs and take other appropriate measures in its war effort.
In order to achieve these purposes, the undersigned, being duly authorized by

their respective Governments for that purpose, have agreed as follows :

Article I.

The Secretary of the Treasury of the United States agrees to establish forth-
with on the books of the United States Treasury a credit in the name of the
Government of the Republic of China in the amount of 500,000,000 U.S. dollars.
The Secretary of the Treasury .shall make transfers from his credit, in such
amounts and at such times as the Government of the Republic of China shall
request, to an account or accounts in the Federal Reserve Bank of New York in
the name of the Government of the Republic of China or any agencies designated
by it. Such transfers may be requested by and such accounts at the Federal
Reserve Bank of New York may be drawn upon by the Government of the
Republic of China either directly or through such persons or agencies as it shall
authorize.

Article II.

China desires to keep the Secretary of the Treasury of the United States in-
formed as to the use of the funds herein provided and to consult with him from
time to time as to such uses. The Secretary of the Treasury of the United
States desires to make available to the Government of the Republic of China
technical and other appropriate advice as to ways and means of effectively
employing these funds to achieve the purposes herein described. Technical
problems that may from time to time arise in effectuating the financial aid
herein provided will be subjects of discussion between the Secretary of the
Treasury of the United States and the Government of the Republic of China.

ANNEXES

481

Article III.

The final determination of the terms upon which this financial aid is given,
including the benefits to be rendered the United States in return, is deferred
until the progress of events makes clearer the final terms and benefits which
will be in the mutual interest of the United States and China and will promote
the establishment of lasting world peace and security. In determining the
final terms and benefits no interest charges shall be made for the financial aid
herein provided and full cognizance shall be given to the desirability of main-
taining a healthy and stable economic and financial situation in China in the
post-war period as well as during the war and to the desirability of promoting
mutually advantageous economic and financial relations between the United
States and China and the betterment of world-wide economic and financial
relations.

Article IV.

This Agreement shall take effect as from this day’s date.

Signed and sealed at Washington, District of Columbia, in duplicate this
day of 1942.

On behalf of the United States of America

Secretary of the Treasury
On behalf of the Republic of China

28 (k)

The Ambassador in China (Gauss) to Secretary Hull

Chungking, March 1, 19^2.

Strictly confidential information has reached the Embassy that a draft Sino-
American loan agreement has been received from Washington by the Ministry of
Finance and has been discussed. It is said that the Ministry resents on the
ground that a measure of control is contemplated the provision for consultation
by the Government of China with the Treasury Department concerning expen-
ditures under the loan. The Ministry has been disappointed to find that the
loan is not granted, as the Press has stated, as an absolute gift in recognition of
China’s contribution to the War effort in general.

I am not prepared to express an opinion on the question of policy whether or
not we should provide for some means of repayment. I have been privately
told by a prominent and intelligent Chinese banker that the obtainment of the
loan was too easy for the loan to be appreciated or for provision for its effective
use to be insured. There is a perceptible assumption on the part of Chungking
officials and bankers that it is a compensation which was due to China for its
past and present resistance to Japan and for what the Chinese regard as our
past and present shortcomings.

It is my conviction that for the purpose of having some measure of control
over the matter in which so large a loan is expended we should firmly insist on
retaining the provision for consultation. It is my opinion as I have indicated

482

U. S. RELATIONS WITH CHINA

in previous telegrams that the best interests of China and our own best inter-
ests as well would be served by controls and allocation of parts of the loan for
specific purposes.

28 ( 1 )

The Chinese Minister for Foreign Affairs (Soong) to Under Secretary

of the Treasury Bell

[Washington,] March 3, 1942

Deab Mb. Bell : I am in receipt of a reply on the draft of the Loan Agreement
from the Generalissimo dated February 25th, which I delayed presenting to you
owing to a visit to Canada.

The Generalissimo is very appreciative of the generous spirit that characterized
the draft Agreement and desires me to convey his grateful appreciation to the
Secretary.

As to details he suggested the following points :

1. Reactions in Chungking as to Article II appear to be that the U. S. Govern-
ment will in some way pass judgment on the uses to which the Loan may be
put, and thereby limits in some degree the freedom of making disbursement.

As China in any case would like to keep the Secretary informed, and as the
Secretary has in the past without any agreement always exerted himself on
every occasion to help China, he suggests that Article II is unnecessary, since
it makes of such voluntary acts mandatory. He therefore hopes that Article II
may be dropped.

2 (a) As the whole energy of the people is concentrated on winning the war,
he hopes that the final determination of the terms upon which the financial aid
is given should be left until after the war. He suggests that the phrase “after
the war” should appear in Article III, coming after the phrase “deferred until
the progress of events” in the opening sentence.

2 (b) Although greatly appreciative of the United States waiving interest, he
believes that the lofty plane of cooperation between the United States and
China would be aided by dropping all reference to interest through deleting the
clause “no interest charges shall be made for the financial aid herein provided”.

2 (c) For the purpose of clarification that the final determination of the terms
upon which the financial aid is given should be a bilateral and not a unilateral
measure, he would suggest that in the final sentence of Article III the words the
“United States and China shall take full cognizance of” should come after the
words “In determining the final terms and benefits”.

In order to make the suggestions clearer I am enclosing the draft Agreement
with such alterations as are suggested in the telegram.

The Generalissimo again bids me to say that such textual changes as he sug-
gested are only to heighten the impression of the Chinese people at this unpre-
cedentedly generous act of the American Government and people.

Would you be good enough to pass on the suggestions to your colleagues for
their kind consideration.

Yours sincerely,

T. V. Soong

ANNEXES

483

28 (m)

Acting Secretary Welles to Secretary of the Treasury Morgenthau

Washington, March 11, 19^2.

My deab Mr. Secretary : I refer to your letter of March 10 on the subject of
the draft of the proposed agreement regarding the extension of financial aid to
China.

All parties concerned are in agreement that the purposes of the extension of
this financial aid are predominantly political, diplomatic, and military.

The draft which you submitted to Dr. T. V. Soong for consideration contains in
its four articles provisions which make readily available to the Chinese Govern-
ment without restrictive commitments the $500,000,000 which the Congress appro-
priated for the making of a loan, the extending of a credit or the giving of other
financial aid to China. It does not in fact impair or restrict the Chinese Govern-
ment’s freedom of action in the making of disbursements.

In his letter to Mr. Bell of March 3 Dr. Soong suggests, on behalf of Generalis-
simo Chiang Kai-shek, the making of a number of changes. In my opinion, we
can readily accept most of these suggestions and proceed accordingly. With
regard, however, to the suggestion that Article II be omitted in its entirety, it
seems to me that there is ample warrant for a discussion of the matter and that
we should endeavor to cause Dr. Soong and the Generalissimo to realize that pro-
visions such as appear in the draft of that article are desirable from point of view
not only of this Government but of the Chinese Government.

With regard to procedure, I would suggest that there first be made a redraft of
the proposed Article II and that there then be communicated to Dr. Soong a
statement by you that we are in complete concurrence with his comments and the
changes which he has suggested except as regards that article, and that, in the
light of his comments on that article, there is submitted to him for his consider-
ation a possible alternative form.

Toward facilitating procedure along that line, I submit here attached for your
consideration a draft of a possible substitute for Article II.

Another possible line of procedure which might be considered would be that of
putting the substance of this suggested alternative draft of Article II into letters
which might be exchanged between you and Dr. Soong.

In as much as the only delay which has occurred in connection with the at-
tention which has been given this matter has been delay on the part of the
Chinese, I would further suggest that, in whatever communication you make to
Dr. Soong, you indicate to him that all officers of this Government who are
concerned with the negotiating of this agreement are eager to bring the matter
to a mutually satisfactory conclusion with the utmost possible expedition.

Sincerely yours,

[Enclosure — Draft ]

Sumner Welles

Article II

As a manifestation of the cooperative spirit which underlies the common war
effort of China and the United States, appropriate officials of the two Govern-
ments will confer from time to time regarding technical problems which may arise
in connection with the financial aid herein provided and will exchange informa-
tion and suggestions regarding ways and means of most effectively applying these
funds toward achieving the purposes which are envisaged by the two nations.

484

U. S. RELATIONS WITH CHINA

28 (n)

The Chinese Minister for Foreign Affairs ( Soong ) to Undersecretary

of the Treasury Bell

[Washington,] March 19 > 1942

Dear Mr. Bell: Confirming our conversation, I have to inform you that I have
received a reply from the Generalissimo with reference to your proposal to re-
insert Article II of the proposed loan agreement in a modified form.

The Generalissimo states that after carefully consulting his colleagues he feels
that even in the modified form Article II is generally construed as limiting the
freedom of action in the use of the proceeds, and would therefore adversely
affect the public response to bonds, savings deposits and other measures that are
to be based on the loan.

In addition, among his soldiers, who have been tremendously heartened by the
generous and unconditional assistance as revealed in the exchange of mes-
sages between the President and himself, the inclusion of Article II would create
the impression that the terms are not as clear-cut as they envisaged.

The Generalissimo therefore feels that the civilian and military reactions are
such as to justify his request that Article II be dropped completely, and I shall
be grateful if you will transmit his message to your colleagues for their con-
sideration.

With kind regards,

Yours sincerely,

T. Y. Soong

28 (o)

The Chinese Minister for Foreign Affairs {Soong) to Secretary of
the Treasury Morgenthau

[Washington,] March 21, 1942

My dear Mr. Secretary: In connection with the Agreement concluded today
between the Governments of the United States of America and the Republic of
China regarding financial aid to China, as a manifestation of the cooperative
spirit which underlies the common war effort of our two countries, I wish to
inform you that it is the intention of my Government, through the Minister of
Finance, to keep you fully informed from time to time as to the use of the funds
provided in the said Agreement.

Sincerely yours,

T. Y. Soong

28 (p)

[For the Joint Statement by Secretary of the Treasury Morgenthau
and the Chinese Minister for Foreign Affairs {Soong) , March 21,
191$, see post , annex 29 ( 5 ).]

ANNEXES

485

28 (q)

The Chinese Minister of Finance (Rung) to Secretary of the Treasury

Morgenthau

[Chungking,] April 20, 1942

With reference to keeping the Treasury informed on all developments relating
to the loan I have done so and intend to do so in the future. For example, I told
Adler on the 18th of March about the plan to put out savings certificates and
bonds and he must have cabled this to the Treasury. I welcome any counsel the
Treasury is willing to offer and if the Secretary cares to make any suggestions
every consideration will be given to them. It was essential to request the shift
of funds to the Central Bank in order to convince the people that use was being
made of the loan without delay to prevent inflation.

28 (r)

Secretary of the Treasury Morgenthau to the United States Treasmry
Representative , American Embassy at Chungking

Washington, December 29, 1942

One. With reference to your cable in which you report that Dr. Kung is willing
to accept any decision the Treasury may desire to make in connection with the
amount of gold which should be purchased from the Treasury by China, whether
it be twenty, thirty, forty, or fifty million dollars, due to the considerations set
forth in the following, the Treasury believes that the more appropriate sum
would be the amount already agreed upon, U.S. twenty million dollars.

A. Treasury does not perceive in what manner the Chinese government would
benefit by purchasing additional gold on which the required charges would have
to be paid by the government of China.

B. It would seem to be indicated by the information received from Mr. Hsi and
from you with respect to the attitude of Dr. Kung on purchasing additional gold
that Dr. Kung does not feel any urgent requirement for additional gold exists.

C. Additional gold purchase by the government of China would entail raising
funds to purchase the additional gold by the United States Treasury. It would
be necessary for the Government of the United States to pay interest on the
funds raised at a time when the Government is already engaged in the task of
borrowing tremendous amounts in order to meet its current fiscal requirements.

D. The Treasury would have difficulty in justifying to the public an increase in
the indebtedness of the United States Government so as to render it possible for
the Chinese government to buy gold for earmarking here, unless China would
benefit in some way by the purchase of additional gold.

Two. Kindly advise Dr. Kung of the foregoing.

28 (s)

Message Received from the Chinese Minister of Finance ( Kung ),

July £, 191$

During the six years of our war of resistance China’s military expenditure has
been increasing continuously. According to the national budget of the current

486

U. S. RELATIONS WITH CHINA

year, the estimated expenditure was originally placed at 36,200,000,000 yuan,
while the estimated income was given as 23,200,000,000 yuan, representing about
65% of the total expenditure. The remaining 35% is entirely met by increased
note issue.

Owing to military requirements and the requests made by the American Mili-
tary Mission, the Chinese Government has undertaken to build, or improve, the
airfields in various parts of the country and to increase their equipment, as well
as to improve the Yunnan-Burma highway and other necessary highways and
railways. Each enterprise often necessitated the expenditure of 4,000,000,000
to 5,000,000,000 yuan, making a total of additional requirements amounting to over
30,000,000 yuan.

Furthermore, owing to the difficulties of transportation and the small volume
of supplies received under the American Lend-Lease Act, the Chinese Govern-
ment has been obliged to provide ways and means of increasing the production
of military supplies in order to meet the demands of the war. All such expenses
are beyond what is provided by the budget, and the Chinese Government is com-
pelled to further increase its note issue in order to meet the situation. For
these reasons there has been constant tendency toward inflation. In order to
remedy the situation and to stabilize the price of commodities, it is necessary
to adopt measures having the effect of checking inflation. Through increased
taxation and other means, the Government has withdrawn a certain portion
of the notes in circulation, but there is still by far the larger portion in the
hands of the people which is being used toward the purchase and accumulation
of commodities, resulting in the further rising of prices and in making livelihood
increasingly difficult.

The chief purpose for the proposed purchase and sale of gold is to withdraw
large quantities of notes now in circulation. The fact that each ounce of gold
is worth now about 8,000 yuan shows the psychology of Chinese people toward
gold. To obtain the desired result, it is only necessary for the time being to
have bullion which can be handled easily. However, the question of coinage is
being given careful study and can be best taken up at the time of reorganization
of Chinese currency.

According to Madam Chiang, the proposal which we are making — that is, the
purchase of 200,000,000 dollars* worth of gold with the United States loan —
has received the approval of President Roosevelt and Secretary Morgenthau in
principle. It is earnestly hoped that it can be realized at an early date. We
always appreciate and welcome suggestions and advices from Secretary Morgen-
thau and Dr. White, but in this particular case we are influenced by actual con-
ditions in China, and we feel that it has to be done in the way we suggested in
order to reap the desired benefits. It is earnestly hoped that we shall not lose this
good opportunity of checking inflation.

28 (t)

Memorandum to President Roosevelt from Secretary of the Treasury

Morgenthau

[Washington,] July 15, 19^8

On July 14, 1943, we sent a message to Dr. H. H. Kung, the Chinese Minister
of Finance, informing him that the Treasury is prepared in principle to agree
to the Chinese request to purchase $200 million of gold out of the $500 million

ANNEXES

487

financial aid as a means of helping to check inflation in China. Dr. Kung was
also informed that a formal request was, of course, necessary before any defini-
tive decision and action could be taken.

The Chinese Government has already drawn on the Treasury to the extent of
$240 million out of the $500 million financial aid:— $200 million has been set
aside as backing for Chinese Government savings certificates and bond issues ;
$20 million was used to purchase gold, and $20 million is being used for the
printing of banknotes and the purchase of relative materials. The purchase of
gold with an additional $200 million will mean that in total the Chinese will
have used $440 million out of the $500 million financial aid.

In the message to Dr. Kung, as well as in discussions with the representatives
of the Chinese Government in Washington, it has been made clear that the
Treasury is acquiescing to the Chinese proposal because the Government of
China deems that the sale of gold to the public will aid its war effort by helping
to fight inflation and hoarding and that, therefore, the decision to purchase the
gold is primarily the responsibility of the Chinese Government. Furthermore,
the Chinese have been urged to give careful consideration to the best ways
of using the gold, particularly because of the great costs, difficulties and dangers
inherent in the use of gold as a means of checking inflation under conditions
existing in China at present. We especially stressed the fact that the Chinese
Government will by this step be sacrificing large amounts of foreign exchange,
which could be used in the post-war period to pay for imports needed for re-
construction and rehabilitation.

The use of gold coins as against bullion for the purpose was carefully con-
sidered. It was felt both by us and by the Chinese Government that this tech-
nique for selling the gold to the public would not be feasible in the present
instance, primarily because it would be necessary to give the gold coins a fixed
monetary value, while it is contemplated that the price of gold in terms of yuan
will change frequently and substantially as time goes on.

The suggestion was therefore made to the Chinese representatives in Wash-
ington that the gold might be sold to the public in China in small bars of one
or two ounces in order to reach the widest possible section of the Chinese public
and such bars might have some engraving which might suggest the United
States origin of the financial aid, if the Government of China so wished.

28 (u)

Secretary of the Treasury Morgenthau to the Chinese Minister
of Finance {Kung)

Washington, July 27, 1948

The Treasury agrees to the request of the Government of China transmitted
to me by Ambassador Wei Tao-ming that $200 million be made available from
the credit on the books of the Treasury in the name of the Government of the
Republic of China for the purchase of gold.

In order to avoid unnecessary raising of funds by the United States Treasury,
it is suggested that transfers from the credit of the Chinese Government for the
purchase of gold be made at such time and in such amounts as are allowed by
existing facilities for the transportation to China of the equivalent amount of
gold. Since it is intended that this gold will be sent to China for sale to the

488

TT. S. RELATIONS WITH CHINA

public, this procedure should not interfere with the program outlined in your
message of July 23, 1&43.

On receipt of requests from the Government of China that a specific amount
should be transferred from the credit of the Government of China on the books
of the Treasury and be used for the purchase of gold, the necessary action will be
taken to consummate these requests. The details of the arrangements will be
discussed with Dr. P. W. Kuo and Mr. Hsi Te-mou.

Sincerely yours,

H. Morgenthau, Jr.

28 (v)

Memorandum to President Roosevelt from Secretary of the Treasury

MorgenthaAi

[Washington,] December 18, 1948

You have spoken of the request of Generalissimo Chiang-Kai-Shek for an
additional $1 billion of financial aid to China to be used to help control inflation
and for postwar reconstruction.

I

The facts regarding inflation in China and the possibility of its control
through the use of dollar resources are as follows :

Inflation in China, as you well know, arises from the grave inadequacy of
production for war needs and essential civilian consumption. Supplies have
been drastically reduced by enemy occupation and the cutting off of imports
except the small amounts that come by air or are smuggled from occupied
territory.

The Chinese Government cannot collect sufficient taxes or borrow from the
people in adequate amounts. As a consequence, the Government has been issuing
3.5 billion yuan a month, twice the rate of a year ago.

The official exchange rate for yuan is now 5 cents; before China entered the
war it was 30 cents. The open market rate for yuan in U. S. paper currency is
one cent and in terms of gold one-third of a cent.

You have suggested the possibility of our selling dollar currency for yuan to
be resold' to China after the war at no profit to us. No doubt something could
be done to alleviate inflation through the sale of gold or dollar currency in China.
I have received the following message from Dr. Kung dated December 14 :

“You will be pleased to hear that the recent gold shipment is one of the
outstanding factors contributing to the strengthening of fapi, because people
believe that the arrival of gold has increased the much needed reserve of our
currency, thereby influencing the stability of prices. The action of the United
States Government re-affirms to the Chinese people that, despite difficulties aris-
ing from the blockade and the cumulative effects of over six years of war against
the invasion, China has a powerful friend desirous of strengthening China’s
economy as conditions permit.”

However, while something could be done to retard the rise in prices, the only
real hope of controlling inflation is by getting more goods into China. This, you
know better than I, depends on future military operations.

ANNEXES

489

ii

China has tried two similar monetary remedies for alleviating inflation without
marked success.

1. The Chinese Government issued and sold dollar securities for yuan, setting
aside $200 million of the aid granted by this country for the redemption of the
securities. (These securities were sold at exorbitant profit to the buyers. For
instance, a person holding $100 in United States currency could have quadrupled
his money in less than two years by selling the currency for yuan on the open
market and buying the dollar securities issued by the Chinese Government.)
I believe that the program made no significant contribution to the control of
inflation.

2. The Chinese Government has recently been selling gold at a price in yuan
equivalent to $550 an ounce, about fifteen times the official rate. We have shipped
to China more than $10 million of gold and they have sold about $2 million of
gold for yuan. This program has not been tried sufficiently to warrant any
definite conclusion as to its possible effect.

China now has $460 million of unpledged funds in the United States and is
getting about $20 million a month as a result of our expenditures. China could
use these funds in selling gold or dollar assets for yuan, although in my opinion
such schemes in the past have had little effect except to give additional profits
to insiders, speculators and hoarders and dissipate foreign exchange resources
that could be better used by China for reconstruction.

Under the circumstances, a loan to China for these purposes could not be jus-
tified by the results that have been obtained. It is my opinion that a loan is
unnecessary at this time and would be undesirable from the point of view of
China and the United States. Large expenditures on ineffective measures for
controlling inflation in China would be an unwise use of her borrowing capacity
which should be reserved for productive uses in other ways. On reconstruction,
it is too soon for us to know the best use or the best form of the aid we might
give to China.

Recommendations

For the past five years I have had a deep admiration for the valiant fight that
the Chinese people, under the leadership of Chiang-Kai-Shek, have waged against
Japanese aggression. Therefore, I am in complete sympathy with your position
that no stone be left unturned to retard the rise in prices. Using the tools
we have at hand, I recommend the following :

1. All United States expenditures in China, currently $400 million yuan a
month and rising rapidly, be met through the purchase of yuan with gold or
dollar currency at whatever price we can get them for in the open market.
This is equal to more than 10 percent of the present rate of issue.

2. Accelerate the shipment of gold purchased by China to twice the amount
we have previously planned to send. It should be possible to raise gold ship-
ments from $6 million a month to about $12 millibn. At the present price for
gold in the open market this would be equal to the present 3.5 billion of yuan
currency that is being issued.

The impact of this two-fold program should contribute to retarding inflation,
always bearing in mind that the basic reason for inflation in China is the
shortage of goods.

490

U. S. RELATIONS WITH CHINA

28 (w)

The Ambassador in China {Gauss) to Secretary Hull

Chungking, December 28, 1948

I called last evening in company with Atcheson upon President and Madame
Chiang at their request. The only other person present was Wang Chung Hui
who had been with them at Cairo. In reply to Chiang’s question, which he asked
significantly, whether I had received any telegrams recently I said none of im-
portance. The Generalissimo then asked my opinion of the situation in China,
especially economic developments, and he observed that he would welcome any
advice that I might offer and hear any plan I might suggest.

In referring to the seriousness of economic conditions, he reiterated his sug-
gestion that I put forward any plan for amelioration. He then went on to say
that in his country the coming year would be most crucial and that the faith
of the Chinese people in China’s national currency had so far prevented an
economic collapse. Chiang said that it was essential that there be an early re-
opening of the Burma Road for so long as this road remains unopened the
desperate economic situation of China renders it essential to support the value
of the currency of China and maintain the rate of exchange.

In reply to Chiang’s question as to whether I have studied the problem of the
financial difficulties of China, I said that we try to keep up with the financial
situation in the light of whatever information is available and that from the
American point of view one aspect which has lately been causing me much
concern is the effect which the rate of exchange is having on the expenditures by
the American Government for the American military forces with which China
is being assisted ; those expenditures are now attaining high figures and when
converted at the artificial rate of exchange are costing the American Government
twenty million dollars and over a month in American currency, which, while
benefiting China by accumulating a currency reserve in the United States,
make for expenditures by the United States eight to ten times as great as
we would have to spend in the United States or elsewhere for services and
facilities of a comparable character such as advance airbase facilities which
our forces urgently require. I expressed my concern that as this became known
in our country it might cause serious criticism that the American Government
and Army are being exploited and that such criticism would operate to the
injury of China as well as of our war effort in China.

The Generalissimo firmly affirmed that the exchange rate for Chinese currency
cannot be altered. I replied that I entirely understood his position on that point.
I suggested however that there might be adopted without involving a change in
the exchange rate other proposals toward a solution of the problem, such as
reverse Lend-Lease, or the proposal that the Secretary of the Treasury had made
to Dr. Rung regarding the sale of gold. Madame Chiang observed that as there
was no market for gold, the efforts of the Chinese Government to sell gold had
proved a failure. The Generalissimo affirmed that he had given study to the
question of reverse Lend-Lease, that the whole financial situation had been
causing Rung and himself much anxiety, that it is not possible to change the
exchange rate and that support must be given to the value of Chinese currency.
He asked that I see Dr. Rung again and just before leaving the room in the
way that is his custom requested with a manifestation of some exasperation and
emphasis that I make it known to our Treasury and military authorities that

ANNEXES 491

both the economic and military collapse of China would result from a failure to
support the currency of China.

Madame Chiang indicated during the course of the conversation that the Presi-
dent had been made acquainted at Cairo with the Generalissimo’s views on the
seriousness of the situation. After Chiang had left she expressed herself em-
phatically in regard to China’s economic difficulties and remarked with some bit-
terness that about 200 Chinese dollars were being paid by China for the main-
tenance of every American soldier in China. She indicated that as our forces
are augmented the cost would become intolerable and added that it is becoming
more and more impossible to find sufficient pigs, chickens, and cattle to feed the
American troops (needed to supplement the amounts of supplies which we our-
selves bring in). She said that it was imperative that sufficient backing be ac-
corded Chinese currency.

Two. It is my belief that last evening’s stage was set for soliciting the support
of the Department of State for request of an additional American loan and that
such a request was not put forward because of the diversion made to the subject
of our expenditures for military purposes. On December 20 I was informed
by Stilwell that a billion dollar loan had been requested by Chiang and that
an answer was expected by Chiang that day. That he told me and no more.
I assume that the request was made through military channels and in connec-
tion with military talks.

It is unfortunate that the Embassy is not kept fully advised of developments
occurring in relations between the United States and China.

In my recent telegram there was carefully set forth the Embassy’s view in
regard to a further loan to China at this time. It is my firm opinion that we
should take a firm stand at this time on this question. In regard to military
plans for a Burma campaign calculated to restore overland transportation to
China, believed by experts here to be the only possible measure for bettering
the abnormal economic situation, I have no information. I am ready to believe
that although the foreign exchange rate is not of concern to the masses of the
people, hoarders and speculators would avail themselves of any substantial
change in that rate to accelerate rising prices still further.

Nothing substantial has actually been done by the Chinese Government to find
and deal with these speculators and hoarders. Nevertheless, I am of the
opinion that China possesses substantial reserves of U. S. currency at this time
and there might be taken, without reference to exchange rate as such, probably
within the framework of the sale of gold and reverse Lend-Lease, reasonable
measures to cope with the situation affecting our military expenditures in
China.

Although I do not pretend to pass judgment in matters of a military char-
acter, I should stress what we have repeatedly reported previously, namely, that
economic and military conditions in China are deteriorating so fast that, in
order to prevent collapse of China in due course, military measures to restore the
Burma Road and reopen land transportation to China are imperative at an early
date. The economic situation in China will not be helped by a loan from the
United States at this juncture. It can only be helped by successful military
operations on an extensive scale.

492

U. S. RELATIONS WITH CHINA

28 (x)

Secretary of the Treasury Morgenthau to Secretary Hull

Washington, December 81, 19^8

My dear Mr. Secretary: This is to acknowledge receipt of your letter of
December 29th enclosing a report of December 23, 1943 from Ambassador Gauss,
I appreciate your sending me this telegram and have found it of considerable
interest.

I see that Ambassador Gauss is in agreement with the views expressed in our
Memorandum to the President, a copy of which I sent to you in letter dated
December 20, 1943.

It would seem that no further steps can be taken regarding the Chinese request
for a loan until we have received a reply to our Memorandum which, as you
probably know, the President said he was going to forward to President Chiang
Kai-shek.

Sincerely yours,

H. Morgenthau, Jr.

28 (y)

Generalissimo Chiang Kai-shek to President Roosevelt 37

I have received your recent telegram forwarded through Ambassador Gauss
and am happy that you have recovered from your indisposition. I appreciate
the fact that you have been endeavoring to find a solution to the economic
problems of China even during your illness.

To my mind the proposals made by the Treasury Department are not those of
one allied nation to another but rather are in the nature of a commercial transac-
tion. If put into practice these proposals would not increase China’s economic
strength in the prosecution of the war. On the contrary the impairment of
the Chinese people’s confidence in fapi would only add to her economic difficul-
ties. I would not make this urgent appeal to you were it not for the fact that
we are entering a most critical stage. I have reached the following conclusions
after giving mature consideration to the future perilous economic situation in
this war theater :

(1) An out and out loan of one billion dollars from the United States would
enable us partly to meet the deficit of the coming war budget and also through
reciprocal aid to meet a part of American military expenses in China, such as
the repair and construction of airfields and necessary installations, the feeding
of American troops and the transportation of war materials, et cetera.

(2) If it is the opinion of the Treasury Department that it is not able to accept
the above proposal I suggest that such expenditures as are incurred by United
States forces in China should be borne by the American Government. The
Central Bank of China will facilitate exchange at the official rate of US$1 equals
20 yuan. The rate is unalterable in as much as we cannot afford to shake the
confidence of the people in fapi , which is a stabilizing factor amidst a world
of uncertainty brought about by the vicissitudes of war. It is only thus that
we can directly maintain the credit of fapi and indirectly save China from eco-
nomic collapse. Such collapse would seriously affect the whole military posi-

37 Transmitted by the Ambassador in China from Chungking, Jan. 16, 1944.

ANNEXES 493

tion of the Allies because of China’s inability to continue resistance for any con-
siderable length of time.

The second of these proposals is outright help which the Chinese people
and army would appreciate and when it is considered that the United States
has been feeding even British and Russian civilians this would be entirely in
accordance with the Allied strategy of pooling resources. As an example, I
might point out here that following the battle of Changteh 300,000 houses in that
area were left in ruins and less than 10 buildings still remain. In this respect
the people of China have suffered incalculable losses since the commencement
of our war of resistance seven years ago. Our sacrifice in men and materials both
civil and military is convincing proof of our willingness to give all that we are
and everything that we have to the Allied cause. One of the crack units of China,
57th Division, has been entirely sacrificed.

I felt keenly when I saw you in Cairo that with your vision and wisdom you
completely comprehended the critical situation which now faces this country
and that you were eager to extend to our people every means of practical help
in order to enable them to march forward shoulder to shoulder with the American
people to common victory. I was so encouraged that I hastened to reassure the
Chinese people of the solidarity and strength of our united efforts. I still feel
sure that as leader of the Allied nations you will do all in your power to help
China to continue her resistance and to do her full part in the global war. You
realize, I am sure, that I will do all in my power to rally the support of the
Chinese nation to bring about speedy victory and that I have even gone to the
length of delaying the reopening of the Burma route so that essential amphibious
equipment might be diverted to the European theater, thereby disappointing all
classes of my countrymen who still bear in their memories the scar of the defeat
suffered in the last Burma campaign as a result of which China lost large quanti-
ties of men and equipment through no fault of her own.

In the event that the Treasury Department feels unable to agree to either
of the above two proposals then China will be compelled to pursue the only course
open to her, namely, to continue resistance against our common enemy Japan
with all her available strength and for as long as possible, thus in a way dis-
charging her responsibilities as a member of the United Nations. In that even-
tuality she would have to permit her wartime economy and finances to follow the
natural course of events. In such a case the Chinese Government would have
no means at its disposal to meet the requirements of United States forces in
China and consequently the American Army in China would have to depend upon
itself to execute any and all of its projects, for to our great regret we would be
placed inevitably in a position in which we could not make any further material
or financial contribution, including the construction of works for military use.

28 (z)

The Ambassador in China {Gauss) to Secretary Hull

Chungking, January 16, 1944

The Generalissimo requested that the Ambassador inform the Departments of
State, Treasury and War that China would not be asking for anything were it
not for the critical military and economic situation because China has pride in
helping herself and in being self-sufficient ; that the Generalissimo assured the
Ambassador that any financial or material assistance rendered China by the

494

U. S. RELATIONS WITH CHINA

United States would not be hoarded for post-war purposes ; that China would not
take advantage of any 1 situation to profit thereby and that China is neither a
petty thief nor a robber baron. The Generalissimo said China had not asked for
assistance last year or the year before. But the situation now is very much worse
than a year ago and the cost of assisting American forces in China has become
such a great strain that China is unable to keep up such assistance and that if
the Treasury Department cannot help China financially, the American Army in
China will have to depend on itself after March 1. The Generalissimo said that
the United States forces have six weeks to make preparations and that after
March 1 China could not be of material or financial assistance in connection with
any project the American forces might have in mind. The Ambassador inquired
whether this meant China would be unable to cooperate militarily with the
United States forces in China. The Generalissimo replied that what he meant
was that after March 1 American forces must look after themselves. Mr. Atche-
son said he assumed this meant that the American forces must finance themselves
and also make necessary arrangements for the purchase of supplies, construc-
tion materials and labor. The Generalissimo replied in the affirmative and said
that China would of course continue to fight as long as she could and that as
indicated in the latter part of his message to the Press she will carry on until
the inevitable military and economic collapse and then will do the best possible
under existing circumstances. Generalissimo Chiang said that within the past
two weeks he had approved requests of United States Army headquarters that
China undertake airfield projects which would cost the enormous sum of 13
billion dollars and that China simply could not finance such projects. (Madame
Chiang said as an interesting sidelight that every American soldier in China
cost the Chinese Government three hundred Chinese dollars per day ; that there
are several thousand American soldiers and that a great increase in the number
of these is contemplated. She said furthermore that at the current cost of mili-
tary rice 300 Chinese dollars would feed a Chinese soldier for a month ; that after
March 1 the United States Army would also have to feed its own soldiers and
that the United States will have to depend upon itself. Madame Chiang said that
date of March first was an implementation of the Generalissimo’s statement set
forth in the last paragraph of his message to the President. )

The Ambassador stated that it was his impression that it is the view of Amer-
ican economists that no amount of American money to the credit of China in
the United States could remedy China’s economic and financial situation any
more than would be the case if our entire output of machine guns were hypothe-
cated to China but remained in the United States. The Generalissimo replied
that American economists know American economy and world economy in gen-
eral but do not understand Chinese economy or Chinese psychology, the latter
having a great deal to do with the situation in China. The Generalissimo said
that the exchange rate is absolutely unalterable; that a maintenance of fapi is
necessary to maintain public confidence; that a loan even though the actual
cash remained in the United States would be regarded by the Chinese people
as a reserve for fapi.

In reply to Mr. Atcheson’s inquiry the Generalissimo said that the question
of the Commission proposed by Mr. Morgenthau was covered in that section of
his message referring to the Treasury’s proposals. Mr. Atcheson pointed out
that this was a suggestion made by the President. The Generalissimo replied
that the Commission would be acting under directions of the Treasury and along
the lines of the proposals made by the Treasury.

ANNEXES

495

The Ambassador reported further that after his return to the Embassy Madame
Chiang telephoned him to say that if the Commission planned to discuss the
proposals made by the Treasury there was no use in its coming but if it was
sent out to discuss the two proposals made by the Generalissimo it would be
welcome. Among various arguments advanced by Madame Chiang was one to
the effect that the expenditures of the United States forces in China amounting
to approximately U. S. $20,000,000 per month could not be dumped on the black
market in a day and that dumping of even U. S. $1,000,000 would swiftly and
extensively lower the black market rate.

The Ambassador added that his comments would follow.

The Ambassador reported that while the Generalissimo rejected the sugges-
tion of sending a commission to China to confer on the proposals made by the
Treasury, he has not closed the door entirely to such a commission provided it
comes to discuss the Generalissimo’s proposals, namely, a loan or assumption
by our Army of all expenses incurred by it in the China theater without financial
or material assistance from the Chinese Government.

The Ambassador stated that if he knew of any possible means which the
United States could utilize to provide aid to China at this time either to trans-
form her contribution to the general war effort into something affirmative or to
support the present economic situation which continues rapidly to deteriorate
he would heartily advocate it. The Ambassador said he would at all times prefer
to see us operate in China without Chinese aid ; that we could completely justify
our heavy expenditures in China on the basis of spiraling prices which China must
also meet in her own operations; but to be compelled to increase these heavy
expenditures another five times because of the unrealistic attitude on the exchange
rates creates a situation which might readily lead to a charge of exploitation and
react unfavorably for China if it became known in the United States.

The Ambassador said that since he had not been informed in regard to com-
mitments or military and other plans he could not suggest how far if at all
pressure might be brought to bear upon China, but expressed the opinion that,
however unpleasant these developments may be, and however unfortunate it
may be that disagreements with China over money matters should have arisen,
we should maintain a firm position declining to be coerced by petulant gestures
or threats.

The Ambassador concluded his message by stating that the conversation held
the preceding evening was calm and friendly on both sides and that the Gen-
eralissimo and Madame Chiang were most cordial throughout.

28 (aa)

Message From General Stilwell to General Somervell , March 27, 19 ^

[Extract]

We are now hoping that the Chinese may take a more realistic attitude on
money matters. The Generalissimo is pressing Kung to effect agreement although
mention of the phrase “exchange rate” sends the Generalissimo into a tailspin.
We would like to have permission to explore the possibilities of the following plan,
the only one which has a chance of success at the present time.

That the Chinese continue to advance CN to U. S. Army according to our needs
and their ability. At the beginning of each three-month period, the U. S. to decide
on a sum of U. S. dollars which will be advanced to the Chinese during the period.

496

U. S. RELATIONS WITH CHINA

For the next three-month period this sum to be figured between 100 and 200, prob-
ably between 125 and 165, U. S. requirements in CN to be kept secret, while the
Chinese may publicize our “contribution” if they think wise for stabilization
purposes. The rate of exchange will not come into the transaction, and the deci-
sion on final benefit derived by the Chinese and U. S. respectively will be left to
postwar negotiation.

We think that the “tri-monthly ratio” between the two contributions will
become the de facto rate of final settlement, since postwar stabilization of rate
must certainly be at a much lower figure. To raise a portion of their contribu-
tion to U. S. in the least inflationary manner the Chinese to be urged to sell gold
and U. S. dollars on joint account. This procedure is preferable to our sale on
our own account since the sales will probably produce only 20 percent of our
requirement. We fully realize the disadvantage of postwar negotiation on final
rate, but think that the dangers are more imaginary than real.

28 (bb)

Secretary of War Stimson to President Roosevelt

Washington, May 26, 1944

Dear Mr. President: I submit herewith a chronological r£sum6 of the nego-
tiations with the Chinese Government with respect to the rates of exchange cover-
ing our expenditures in China. Since the rdsum6 necessarily is somewhat long,
I am also summarizing herewith its context.

When our troops first arrived in China they found an agreed exchange rate
of $20 (Chinese) for $1 (U.S.), which even then had no realistic relationship to
the purchasing value of the Chinese yuan. However, our requirements for food
and housing were small and the expenditures were assumed by the Chinese Gov-
ernment which also undertook the requisite airport construction. In the fall
of 1943 when General Somervell visited Chungking, this situation had changed
and important construction was delayed, as the Chinese Government had not
provided sufficient funds. General Stilwell was making direct expenditures to
obtain necessary speed in completing urgently needed facilities.

General Somervell proposed to Dr. Rung the establishment of a more favorable
exchange rate. He suggested a rate of 100 to 1 in comparison with the then
black market rate of 120 to 1. He proposed that we continue to procure $20
(Chinese) for each $1 (U.S.) with the Chinese either to donate or to make avail-
able under reverse lend-lease $80 (Chinese) for each $1 (U.S.).

At the Cairo Conference the United States agreed to finance further construc-
tion expenditures. However the exchange rate was not discussed. The General-
issimo on his return cabled you requesting either a loan of $1,000,000,000 (U.S.),
nr the payment of Chinese expenditures at a 20 to 1 rate. As this would have
made our expenditures in China astronomical, you disapproved the proposal and
urged the Generalissimo to accept proposals offered by our representatives.

The Chinese had been threatening to discontinue construction. With the re-
ceipt of your message, they agreed to provide $2,500,000,000 (Chinese) and we
in turn agreed to deposit $25,000,000 to Chinese account in this country. This
was in effect a 100 to 1 rate, but the Chinese would not continue the arrange-
ment on a monthly basis. We also forwarded $20,000,000 (U.S.) at Chinese re-
quest for purchase by the Chinese in the black market to lower- the rate. There
was little confidence in this proposal and the money has not as yet been turned

ANNEXES

497

over to the Chinese. Nevertheless, the Chinese continued to advance funds for
the construction program subject to our shipment of $5,000,000,000 (Chinese)
per month into China. This is continuing and work to date has not been held up.

The Chinese have advanced us $7,000,000,000 (Chinese) and have received
in partial payment the one deposit of $25,000,000. Manifestly, they are worried
as to the rate for repayment. For the first time we occupy the favorable posi-
tion. We have advised the Chinese consistently of our willingness to bear these
expenditures at a reasonable exchange rate. The 60 to 1 rate recently proposed
by Dr. Rung with $20 (Chinese) to be purchased for each $1 (U.S.) and $40
(Chinese) to be provided under reverse lend-lease is not realistic in view of the
present black market rate. We are not adverse to a reverse lend-lease arrange-
ment of this type, though we do object to an unrealistic rate ; and although it
would result in the Chinese obtaining a greater credit for future settlement, it
would appear most unlikely that funds received under reverse lend-lease at
any rate approaching realism would at any time even closely approach the
dollar value of direct lend-lease aid.

Perhaps our war program in China has contributed somewhat to inflation.
However, the number of our troops and the magnitude of our construction are
not sufficient to have a major effect. The Chinese report expenditures at ap-
proximately $10,000,000,000 (Chinese) for support of our troops and for con-
struction prior to the Cairo Conference. They have advanced $7,000,000,000
(Chinese) for construction authorized at Cairo. In turn the United States has
lend-leased goods valued at $413,000,000 (U.S.). The Treasury Department
granted a credit to the Chinese Government of $500,000,000 (U.S.), against
which it drew $243,000,000. The FEA has purchased goods for $48,000,000 (U.S.)
at a 20 to 1 rate. Our forces in China have expended through February 1944 a
total of $155,000,000 (U.S.) at the rate of 20 to 1. The financial contribution of
the United States has been most substantial and greatly in excess of the Chinese
expenditures even at the 20 to 1 rate. A settlement of the $7,000,000,000
( Chinese) construction advance alone at the 20 to 1 rate would involve a premium
payment of over $300,000,000 (U.S.) compared with a rate of 150 to 1, and the
latter is below current black market.

The black market is continuing to rise. The rate at the present time should
not be less than 150 to 1 and even this rate should be revised periodically unless
the Chinese Government controls inflation.

The War Department believes that our representatives should continue to
stand firm for a realistic rate. In view of the effect of any rate on military
planning, commitments should not be made in Chungking without clearance in
Washington by the Treasury Department and your approval.

Respectfully yours,

Henry L. Stimson

[Enclosure]

R£sum£ of Chinese Exchange Situation, 19 May 1944

1. The exchange situation in China first was brought to the attention of the
War Department by General Stilwell early in 1943, at which time he reported that
the official rate of exchange of 20 to 1 was not realistic, inasmuch as the open
market rate at that time was around 40 to 1 and increasing rapidly. He called
attention to the fact that with the large expenditures contemplated by the Army,
definite steps should be taken to have a new official rate established.

498

U. S. RELATIONS WITH CHINA

2. The official rate of exchange of 20 to 1 was established in August 1941 and
has been supported by the U. S. Government as a measure of making effective
the stabilization agreement entered into with China at the same time. This
stabilization agreement expired in January 1944.

3. When the matter of the rate was first reported by General Stilwell the Treas-
ury Department was requested to give some consideration to having the Chinese
effect a change in the rate and during the latter part of 1943, that department
endeavored to obtain some relief in the matter. . These efforts included a change
in the official rate, the granting of a special rate to the United States or the sale
of gold at an advantageous price to use the proceeds to decrease the excessive
costs of the War Department’s expenditures in China because of the unrealistic
rate.

4. With a knowledge of the State and Treasury Department and undoubtedly
with the full knowledge of the Chinese Government, the War Department has
been paying its personnel in China U. S. currency and permitting that personnel
to go into the open or black market and purchase Chinese currency at any avail-
able rate. Later, the State and Treasury Department requested the War Depart-
ment to ship United States currency to China for use in paying personnel and
operating expenses. The War Department has been reluctant to having its
soldiers dealing in black market operations, but for morale purposes, it could
not do other than authorize such a procedure in view of its failure to find other
means of giving its men in China sufficient local currency to offset the unrealistic
exchange rate. In addition to the morale factor, there has been the ever increas-
ing expenditures by the War Department for supplies and construction.

5. Failing to secure relief through a change in the official rate, the War De-
partment, early in 1943 felt the need for a reciprocal Lend-Lease agreement with
China and the Chinese Government indicated that they may be willing to enter
into such an agreement. Accordingly, an agreement was drafted for submis-
sion to the Chinese. In view of the exchange situation and the fact that the
Treasury Department expressed the view that efforts up to that time to secure
a better official rate of exchange had proved fruitless, it was decided to include
in the reciprocal Lend-Lease agreement, in addition to the provisions to direct
aid in kind, a section to the effect that the Chinese Government would provide
funds in Chinese currency to be used by the U. S. in direct purchase of sup-
plies, materials, facilities and services in lieu of reciprocal aid in kind and
to meet the essential governmental and military needs for Chinese currency.
The understanding was that this currency received under the agreement could
be used in reducing the excessive cost to the U. S. of expenditures for
personnel and other purposes on account of the unrealistic Chinese exchange
rate. This reciprocal Lend-Lease agreement was presented to Dr. Soong,
Foreign Minister of the Chinese government by the State Department in Wash-
ington in May 1943 with a memorandum explaining the purpose of the financial
provisions thereof. The agreement was submitted to General Stilwell in China
and was concurred in by him in view of the apparent impossibility of securing
a proper exchange rate.

6. In October 1943 General Somervell visited Chungking. He was advised by
General Stilwell that delays occurring in construction necessitated direct con-
tractual expenditures by United States forces. The artificial exchange rate of
20 to 1 as compared with a black market rate of 120 to 1 was resulting in
exorbitant costs. General Stilwell believed that a better arrangement was
essential to our planned operations. General Somervell, with the knowledge
and consent of the Ambassador, proposed to Dr. Kung, subject to ratification

ANNEXES

499

by the U. S. authorities in Washington, that the Chinese Government make
available to our forces the requisite Chinese currency to support these forces
and the military construction under one of two alternatives :

a. The United States would deposit to Chinese account in the United States
$1 U. S. for each $100 CN furnished, this deposit to be credited against an
official exchange rate of 20 to 1, with the remaining $80 CN to be a contribution
of the Chinese Government to our joint war effort (this arrangement would
protect publicly the 20 to 1 official rate) ; or,

b. The Chinese Government would provide the requisite funds with the United
States depositing to Chinese account $1 U.S. for $20 ON of each $100 CN made
available, the remaining $80 CN to be provided under a reverse lend-lease agree-
ment.

Dr. Kung appeared to view these proposals as feasible and promised to place
them before the Generalissimo for approval.

7. Shortly after General Somervell’s return to the United States in November,
and before the proposals could be carried further, the Cairo Conference was held.
The Generalissimo attended this conference. It is understood that he was advised
that the United States was prepared to bear the cost of its military effort in China.
It is not understood that the question of exchange rates was considered. Subse-
quent to the conference, as indicated in the report of Ambassador Gauss, January
16, 1944, the Generalissimo in a message to the President urged that a loan of
$1,000,000,000 U.S. be made to China, or that, otherwise, the United States
assume full responsibility for its expenditures in China at a 20 to 1 rate.

8. The Treasury Department was then negotiating with the Chinese Govern-
ment with a view to transporting gold to China for purchase of Chinese currency
in the open market to control inflation and to secure a better exchange rate.
These negotiations did not appear to be progressing rapidly. The Secretary of
Treasury recognizing the urgency of the airport construction program authorized
the War Department to proceed with its own negotiations.

Representatives of the State Department concurred in this arrangement. Our
military representatives were authorized to advise the Chinese that the United
States was prepared to accept full responsibility for its military expenditures
subject to the establishment of a reasonable exchange rate which would have
some relationship to the actual purchasing power of the Chinese dollar. On 15
January our Commanding General in China and State Department representatives
were advised to press for an early completion of a reverse lend-lease agreement
concurrently with an agreement to be presented by military representatives with
respect to the funds to be made available by the Chinese Government to cover
our military expenditures. The military representatives were advised to keep
in constant touch with the State Department and Treasury Department repre-
sentatives so that any action taken in Chungking would be jointly understood.
Mr. Edward C. Acheson was sent to China to assist the Commanding General in
presenting the proposed fiscal arrangement.

9. In reply to the Generalissimo’s request, referred to above, the President
urged the acceptance of the proposal submitted by our military and diplomatic
representatives. It is to be noted that the authorities in this country were in
agreement that there was little merit in the proposed loan to China.

10. Our military and diplomatic representatives proceeded with the negotia-
tions. In the latter part of January estimates became available with respect to
the substantial construction costs involved in the new airport projects. Mean-
while the black market exchange rate had continued to advance and payments in

500

U. S. RELATIONS WITH CHINA

American dollars at a 20 to 1 rate would have become astronomical in com-
parison to the value received in work. The War Department would have found
it necessary to have requested additional funds for the purpose from Congress and
was apprehensive that the exorbitant costs would have serious repercussions.
Again on 24 January our military representatives were advised to maintain a
firm stand, but to inform the Chinese Government that the United States was
prepared to place to Chinese account the U.S. dollar equivalent of any Chinese
funds made available under general arrangements which they would suggest to
the Chinese Government.

11. Dr. Kung was designated by the Generalissimo to receive the United States’
proposals. Our representatives proposed as an interim measure that the United
States would purchase $1,000,000,000 CN at the rate of 40 to 1 through the deposit
of $25,000,000 U.S. to Chinese account in this country. The Chinese Government
would add $1,500,000,000 CN to this account. This proposal would have estab-
lished an interim exchange rate of 100 to 1. The Chinese Government did advance
the first funds and the $25,000,000 U.S. in payment thereof was deposited to
Chinese account. However the Chinese Government did not accept the proposal
as a continuing measure. On 3 February Dr. Kung made a counter-proposal to
continue the official exchange rate of 20 to 1 with the Central Government con-
tribution $10 CN more for each $1 U.S. under reverse lend-lease. Our representa-
tives turned down this proposal. They advised us on 12 February that they could
see no benefit in further proposals. However, Dr. Kung was asked to advance
$1,000,000,000 CN per month during the remainder of the negotiations with the
repayment rate to be decided during negotiations.

12. Report of expenditures at this time indicated that our own expenditures
in China had increased from $400,000 in January 1943 to $23,000,000 in Decem-
ber. Estimates for airport and other construction indicated a requirement of
approximately $2,500,000,000 CN monthly. Payment for these funds at a 20 to 1
rate as compared with the proposed 100 to 1 rate would have resulted in an
annual premium to the Chinese Government in excess of $1,000,000,000. However,
the proposed rate of 100 to 1 was still below the real purchasing value which was
more adequately expressed by the black market rate which had reached 150 to 1.
On February 20 General Stilwell was advised that he must continue to take a
firm stand while still expressing the willingness of the United States to bear full
costs at a reasonable exchange rate. On February 25 we were advised by our
military representatives that Dr. Kung had asked for $20,000,000 U. S. to be
flown to China as an advance to the Chinese account with the rate to be deter-
mined later. These funds Dr. Kung proposed to use for the purchase of Chinese
currency in the black market in an effort to drive down the black market rate.
At the suggestion of our representatives, and with the approval of the Treasury
Department, this money was flown to India in the understanding that’ $5,000,000
U. S. was to be made available to the Chinese Government to test the effect of the
proposed purchases prior to utilizing the full amount. These funds have not as
yet been turned over to the Chinese Government as our representatives on the
ground felt that the transfer might prove detrimental in view of the existing
status of negotiations.

13. On March 2 our representatives advised us that the Chinese Government
had agreed to furnish not to exceed $5,000,000,000 CN per month to our forces
provided the requisite money in Chinese currency was shipped from the United
States, with March and April requirements to be shipped by air. Arrangements
were made to meet this request.

ANNEXES

501

14. During the period of negotiations the construction work has been proceed-
ing satisfactorily. As our proposal with respect to the deposit of $25,000,000 U. S.
per month to the Chinese account in the United States in exchange for $2,500,-
000,000 CN had not been accepted by the Chinese Government, only the initial
deposit was made. Since we are obtaining all of the funds needed without an
exchange commitment, our representatives in China believed it undesirable to
submit further proposals to the Chinese. They awaited counter-proposals from
the Chinese Government. On May 7 our representatives advised us that the
Chinese were pressing hard for a financial agreement at a 60 to 1 rate, $40 CN
of each $60 CN furnished to be credited as reverse lend-lease. As the black
market was continuing to rise, our representatives were unwilling to accept this
offer and insisted on a three months' agreement for a rate of 150 to 1. Our rep-
resentatives in the field reported that the Chinese Government would make a
direct appeal to the United States.

15. It is important to note that the Chinese Government has receded con-
siderably from its stand taken in 1943, and from its even more adamant stand
taken in December 1943 and January 1944, as a result of the firm position taken
by the United States. While the work undertaken by the American forces and
payment therefor may aggravate the distress of the Chinese economy, it is very
doubtful if its influence on the inflation difficulties is a major contributing factor.
In local areas where work is being carried on, our expenditures will have more
serious effect on inflationary difficulties than elsewhere, but even there our
expenditures are not the primary cause of their economic disturbance. In any
event, it is difficult to understand the effect of the rate of exchange on this
economy as the United States funds made available to China would accumulate
as a credit to be drawn against after the war. It would be difficult to justify an
artificial exchange rate which would make the cost of American participation in
the war in China out of all proportion to the actual value of the work received,
particularly taking into consideration the relatively low cost of labor in China as
compared with the United States.

16. The extent of United States aid to China must also be taken into considera-
tion in determining the exchange rate which is to be accepted. Lend-Lease aid to
China has aggregated more than $400,000,000 U.S., although some of the Lend-
Lease material is still stock piled in India as transportation has not been avail-
able for its movement to China. At a realistic rate, this Lend-Lease expenditure
alone is equivalent to $60,000,000,000 CN.

In addition thereto, the Treasury Department granted a credit to the Chinese
Government of $500,000,000 U.S. in March 1942 against which $243,000,000 has
been drawn at the end of *1943.

The Foreign Economic Administration will have purchased in China from 1941
through June 1944 approximately $48,000,000 U.S. which at the official rate
would purchase $960,000,000 CN worth of merchandise (strategic materials). At
a realistic rate of 100 to 1 as a conservative average for the period, these pur-
chases would have cost only $9,600,000 U.S. This means that over the period
the Chinese Government had been benefited as a result of the unrealistic ex-
change rate by a premium of $38,400,000 U.S.

Likewise, our forces in China have expended for the period 1 January 1943 to
include February 1944 a total of $155,550,000 U.S. which at the official rate of
exchange total $3,111,000,000 CN. Expenditures during the month of March and
April 1944 have been on the basis of the new agreement, whereby the Chinese
advanced to us the currency required for our needs and we in turn deposited
U. S. currency to the credit of the Chinese Government in such amount as the

502

U. S. RELATIONS WITH CHINA

Commanding General, U. S. Forces reports as properly due. The total amount
reported by the Commanding General, U. S. Forces under this agreement to have
been received up to April 23 is $7,680,000,000 CN. (How much of this should
be credited as a Chinese contribution to the war effort, and how much the
United States Government is expected to reimburse the Chinese cannot be de-
termined in Washington at this time in view of the fact that negotiations in this
respect are being carried on by General Stilwell in China.) This is a total
expenditure in Chinese currency to date of $10,791,000,000 CN. This would cost
the U. S. at the official rate of 20 to 1 $539,550,000 U.S. whereas at a realistic
rate of 150 to 1 it would cost only $72,000,000. This means that the U. S. pays
a premium on these expenditures of $467,550,000 due to the unrealistic rate.

Dr. Kung in a letter to the Secretary of War has reported Chinese expenditures
during part of February and all of March and April as aggregating $7,016,000,000
CN. The Chinese state, however, in addition to this amount the Chinese Govern-
ment has paid out since September 1942 for construction of airfields, barracks,
air force supplies and improvement of roads at the request of the United States
authorities a total of $10,878,260,457 CN.

While the cost of the services furnished the United States forces in China
cannot be verified, his estimate of construction cost in 1944 of $7,000,000,000
CN is in agreement with our own figures. The United States has deposited
against this advance of $7,000,000,000 CN the sum of $25,000,000 U.S. to Chinese
credit in the United States.

17. In view of the large sums involved and the continuing expenditures, it is
apparent that the agreed exchange rate may have a decided influence on military
operations and on military planning. While it is desirable for a firm agreement
to be effected at the earliest possible date, the importance of such agreement
to contemplated military operations warrants its careful consideration in Wash-
ington before it is accepted formally. It is suggested, therefore, that any ar-
rangements which may be proposed in Chungking be tentative until their effect
on military operations can be studied by our Government in Washington so that
^21 factors may be taken into consideration. It is apparent that the American
position has constantly improved during the progress of the negotiations as a
result of the firm stand taken by all of our representatives working in close
agreement. Meanwhile, military construction has proceeded without delay.

28 (cc)

Minutes of a Meeting on Chinese Gold Purchases 38

Present: Mr. White

Mr. Bernstein
Mr. Hsi Te-mou
Mr. T. L. Soong
Mr. Y. C. Koo
Mr. Adler

Mr. Hsi gave Mr. White a copy of the following telegram from K. K. Kwok:

“As Federal Reserve Bank of New York advised having shipped balance by plane
thus exhausting our $20 million and as sales still extremely heavy and recent
arrivals far from being adequate to meet outstanding contracts, please request

ss Held in the office of Mr. H. D. White, Director of the Division of Monetary Research,
Treasury Department, on Oct. 2, 1944.

ANNEXES

503

U. S. Treasury immediately transfer US$20 million or if possible more out of
$200 million and ship by plane. Please contact Adler and give him my best
regards.”

Mr. White raised the general question of the merits of selling US$200 million
of gold in the existing situation. He pointed out that China’s gold would be an
enormous asset to her after the war if still conserved as it could provide a base
for economic reconstruction as well as for reorganization of the currency. If
it were sold now it might have some little psychological effect but could not
substantially retard rising prices or the basic economic situation which was due
to the acute scarcity of goods. Moreover, much of the gold would disappear into
hoards and might emerge from those hoards either very slowly or not at all.
Mr. White asked who was buying the gold and Mr. Koo replied that it was dis-
tributed from Chungking to Sian, Lanchow, Chengtu, etc. where it was bought
by farmers and amahs.

Mr. Y. C. Koo indicated that sale of gold had had some beneficial effect and
that the cessation of the sale of gold would send prices skyrocketing. The ques-
tion was then raised of the discrepancy between the price at which gold was sold
by the Central Bank and the black market price. Mr. White pointed out that
with the existence of such a spread sometimes amounting to CN$5-6,000 some-
body was making a profit and it was not the government. The Secretary had
shown some interest in this question. Mr. Soong expressed surprise that the
spread had been so high, Mr. Adler adding that it had been as much as 60%
of the official price in the early part of September and then had dropped to
CN$1,500 with the arrival of gold. There was some discussion of the relation-
ship between spot and forward prices, Messrs. Koo and Soong claiming that the
main reason for the discrepancy between the price at which the Central Bank
sold and the black market price was the non-availability of supplies in Chung-
king. If there were sufficient supplies of gold, the discrepancy could be oblit-
erated. Mr. Hsi pointed out that even with current arrivals, forward sales
exceeded Central Bank’s supplies of gold. It was also pointed out that the
existence of high rates of interest might explain part of the discrepancy between
spot and forward but after some comment by Mr. White and Mr. Bernstein,
Messrs. Soong and Koo emphasized that the market’s lack of confidence in the
Central Bank’s ability to procure adequate supplies was apparently the main
reason.

Mr. White pointed out that it was cheaper for the Central Government to print
fapi than to absorb fapi in exchange for gold at a time when the dent that was
being made by the sale of gold was not significantly large. Mr. Koo stated
that in the month of July two billion fapi had been absorbed by the sale of gold,
Mr. Adler adding that the note issue in July was 9 billion fapi. Mr. Y. C. Koo
mentioned that U.S. Army expenditures had been the major factor in the de-
terioration of the economic situation and alluded to the good relations that had
existed between the Treasury and the Ministry of Finance during the past ten
years. Mr. White said there was no question of that ; in fact were it not for these
good relations the Treasury would not be interested in how China utilized her
gold. He was anxious to see that she got the maximum advantage from such
utilization.

He asked how much gold China had left. Mr. Hsi replied that she had US
$10 million left from a previous account and that Dr. Kung was anxious to get
more gold through use of the half billion dollar loan. In fact, Dr. Kung was
asking for $50 million of gold for sale of gold bullion and $100 million of gold
for minting token coins. Mr. Koo and Mr. Soong stressed the fact that the cessa-

504

U. S. RELATIONS WITH CHINA

tion of the sale of gold would have very serious effects at this time. Mr. White
asked whether people who bought forward could receive cash for their delivery
certificates and the answer was in the affirmative. Mr. White pointed out this fact
should reduce the spread between spot and forward. Mr. Adler asked why the
price of gold had been lowered in July. Mr. Koo and Mr. Hsi said they would
cable to Chungking for an explanation, Mr. Hsi confessing that it appeared to
have been a mistake.

Mr. Hsi expressed the desire to take up the question of the minting of coins.
Mr. White indicated that it should be taken up with Mr. Adler and the people
from the Mint.

Mr. White concluded the meeting by saying that he would take up the matter
with the Secretary and get in touch with the Chinese again.

28 (dd)

Memorandum by Secretary of the Treasury Morgenthau 38

1. This memorandum does not deal with the questions of textiles and trucks
which were included in the program which was presented to this Government.
The urgency of China’s need for these items and their bearing upon inflation are
recognized. They are omitted because our supply authorities are in the process
of making an over-all determination of requirements and supplies and are not
yet in a position to make a decision respecting China’s requests.

2. We are agreed that any program to stabilize the currency and to check
inflation should comprise a broad series of measures in the following categories :

(a) Monetary and banking rehabilitation.

(b) Foreign exchange stabilization.

(c) Fiscal and administrative reforms.

(d) Increase of supplies and improvement in their distribution.

3. We are anxious to give full support to an effective anti-inflationary program
for China. It is therefore recommended that a Currency Stabilization Fund of
$500 million be constituted for this purpose from the remaining $240 million of
the United States loan to China and from China’s existing dollar balances. Such
an allocation of this remainder of the United States loan would be in strict
accordance with the spirit and the letter of the 1942 financial agreement. The
Fund would be set aside with firm mutual commitment on the part of China and
the United States as to its purposes and availability.

It is envisaged that the uses to which this Currency Stabilization Fund would
be put would be part of a broad concerted program for combatting inflation and
for currency stabilization and these uses would be subject to joint agreement.
The time at which the Fund’s operations would start would be discussed at a
later date.

The Treasury stands ready to advise and consult with the Chinese Government
on the content and timing of such anti-inflationary and stabilization program.
We are strongly of the opinion that the initiation of a Currency Stabilization Fund
would strengthen the financial position of the Chinese Government and would
inspire confidence both at home and abroad in its future economic and financial
stability. The existence of such a Fund would give the Chinese people a real
sense of security with respect to their ability to cope with their grave problems
of reconstruction.

® Handed to Dr. T. V. Soong on May 8, 1945.

ANNEXES

505

It should be noted that this proposal relates to only one portion of the foreign
exchange assets presently available to China and that it would leave a relatively
large amount of dollar exchange for helpful intermediate measures and for
meeting China’s current foreign exchange requirements.

4. We believe that the Chinese Government should terminate the program of
forward sales of gold. As you know, the U. S. Treasury was not consulted
when this program was initiated. In view of the difficulties of shipping gold,
the limited effects of sales upon price rises in China, the public criticism of
such sales and the desirability of using foreign exchange resources to achieve
maximum effects, this program is ill-advised.

5. The Treasury will endeavor, as in the past, to make available limited quan-
tities of gold for shipment to China during the next few months, having due
regard to the need for restricting gold shipments where these endanger lives or
use scarce transport facilities. However, in consideration of points 2 and 3
above, it is believed that further shipments should be financed out of foreign
exchange assets other than those proposed to be earmarked for currency
stabilization.

6. China should investigate and cancel sales to speculators and illicit pur-
chasers and insure that only bona fide purchasers will receive such gold as is
available. If gold arrivals are still not sufficient to meet past commitments, it is
suggested that China may offer to place dollar credits (at about $35 per ounce)
for the time being from her existing assets to the accounts of purchasers of gold
to whom she cannot temporarily make delivery.

7. It is most unfortunate that the impression has arisen in the United States
that the $200 million of U. S. dollar certificates and bonds and the gold sold
in China have gone into relatively few hands with resultant large individual
profits and have failed to be of real assistance to the Chinese economy.

28 (ee)

Minutes of a Meeting on Gold Fund for China 40

Present : Secretary Morgenthau
Mr. D. W. Bell '

Mr. Coe
Mr. Adler
Mr. Friedman
Mr. Clayton
Mr. Collado
Mr. T. V. Soong
Mr. Tsu-yee Pei
Mr. W. Y. Lin

►Treasury

State

China

Before Dr. Soong, Mr. Pei and Mr. Lin joined the meeting, there was a brief
discussion of what the Chinese would be told. In this discussion Mr. Coe made
the point that he still favored the establishment of the $500 million fund and
pointed out that our memorandum was not inconsistent with our commitment
to the Chinese. The Secretary indicated that he was prepared to give them
the remainder of the $200 million of gold.

When Dr. Soong, Mr. Pei and Mr. Lin joined the meeting, the Secretary asked
Dr. Soong for the answer to his questions on how much gold China would need

Hold in the office of the Secretary of the Treasury, Mr. Morgenthau, on May 9, 1945.

506

U. S. RELATIONS WITH CHINA

for the next three months. Dr. Soong replied that in addition to the outstand-
ing commitments the Chinese planned to sell about 1 million ounces during the
next three months. The Secretary asked the ‘‘experts” to agree on the figures
after the meeting.

Dr. Soong then read a memorandum proposing a reconstruction fund which,
in effect, indicated that the Chinese wanted much larger loans from the United
States.

The Secretary replied that we would give their proposal our careful considera-
tion. He then went on to say that the establishment of a $500 million Fund would
assist him in furthering China’s interest before Congress. At this time, he said
he was asking Dr. Soong to reconsider their decision to see whether they could
not see their way clear to the establishment of such a Fund.

Dr. Soong replied that he could not do it ; that he could only consider it if the
Fund was established out of new loans. He, moreover, could not be responsible
for the mistakes made in his absence and these mistakes were now being over-
come. He, Dr. Soong, had not objected to the publicity on the mishandling of
the Funds. He had not opposed sale of U.S. dollar savings certificates and
bonds, but it had been stupid to stick to the original 20 to 1 rate.

The Secretary pointed out that he would like to be helpful and that, in effect,
it was merely a matter of re-arrangement of Chinese bookkeeping in order to
set up this Fund. If Dr. Soong decided not to accept the proposal on the $500
million Fund, the Secretary would obviously be disappointed. However, the
commitment to make available the remainder of the $200 million of gold was not
tied up with the fund proposal and the Treasury would study ways of accelerating
gold shipments.

28 (ff)

The Chinese Minister for Foreign Affairs {Soong) to Secretary of
the Treasury Morgenthau

[Washington] May 9 , 191fi

My dear Mb. Secretary : May I express my appreciation of the frank talk we
had at luncheon, and the helpful attitude you showed at the conference this
afternoon.

I have cabled to the Generalissimo your suggestion of setting up a $500 million
Reconstruction Fund, and will let you know as soon as I have his reply. I
added that you recognized that the above suggestion and the question of gold
delivery are two separate matters; that there is no question of the validity of
your prior commitment ; that you are ready to meet it ; and that gold will be
made available.

In view of the urgency of the situation, I shall appreciate it if you will kindly
designate some member of your Department to discuss the details with my
assistants, Mr. Tsu-yee Pei and Dr. W. Y. Lin, so that the necessary shipments
could be made at once.

As Mr. Clayton said this afternoon, I have to return to San Francisco to meet
my engagements there, accordingly I shall be grateful for your prompt reply.

Faithfully yours,

T. V. Soong

ANNEXES

507

28 (gg)

Acting Secretary of State Grew to Secretary of the Treasury

Morgenthau

Washington, May 16 , 1945

My dear Mr. Secretary : The Department has given careful attention to the
request of the Chinese Foreign Minister, Dr. T. V. Soong, for the delivery during
the remainder of 1945 of about $190,000,000 of gold from the unused balance
of the $500,000,000 credit approved by the Congress in January 1942.

It is the Department’s view, which it understands is shared by the Treasury,
that the sale of gold by China has not proved and is not likely to prove a very
effective anti-inflationary device. Moreover, it believes that the establishment
of a $500,000,000 fund for combating inflation and stabilizing the Chinese cur-
rency which you proposed last week to Dr. Soong would, if adopted by the Chinese
Government, be of considerable short and long run benefit to China.

The Chinese Government believes, however, that the immediate political and
psychological as well as real economic effects of a continued and accelerated
gold sale policy will have a vital importance in the critical situation con-
fronting it, and strongly requests the delivery of the gold in question in accord-
ance with the terms of the understanding between the two governments of
July 1943. Since there appears to be no doubt that the Chinese Government
attaches a greater importance to the immediate delivery of the gold than to
the longer run benefits which might result from the establishment of the fund
which you have proposed and since the continued stability of China and her
increasing military efforts in the war against the common enemy are of great
concern to the United States, the Department recommends that the Treasury,
if transportation is available, deliver the gold to China in accordance with the
time schedules put forward by Dr. Soong.

Sincerely yours,

Joseph C. Grew

28 (hh)

Secretary of the Treasury Morgenthau to the Chinese Minister for
Foreign Affairs (Soong)

Washington, May 16 , 1945

Dear Mr. Soong : This is to confirm what I told you today. In accordance with
your memorandum of May 11, the Treasury is prepared to authorize the ship-
ment of the balance of the $20 million of gold which is on earmark with the
Federal Reserve Bank of New York for the Central Bank of China and to transfer
the balance of $180 million to the account of the Central Bank of China
with the Federal Reserve Bank of New York, in three equal monthly installments
of $60 million from May to July 1945. The Treasury accepts the schedule of gold
shipments contained in your memorandum of May 11, 1945 and is making arrange-
ments with the Army to carry out the shipments of the gold according to that
schedule. The preliminary arrangements to ship the requested amount for the
month of May have already been made. These steps are being taken in accord-
ance with our Financial Aid Agreement of March 1942 and my letter to Dr. Kung
of July 27, 1943.

508

U. S. RELATIONS WITH CHINA

At this time it seems to me necessary and desirable to point out that the purpose
of the $500 million of financial aid to China, and particularly my agreement in
July 1943 to ship gold to China, was to assist in an anti-inflationary program
which would strengthen confidence in the Chinese Government and its finances
and thereby help maintain the Chinese economy. As you know, it is my opinion
that the sale of gold by China has not proved effective in combating inflation, and
I am doubtful that it will prove effective. Also as I have told you, the manner
in which the gold sales have been conducted and the consequent public criticism
of them in China are not conducive to achieving the purposes for which our
financial aid was granted.

Therefore, I would respectfully ask the Chinese Government to consider care-
fully the matters proposed to you in my memorandum of May 8, 1945. In par-
ticular I would reiterate my suggestion that China constitute a $500 million
fund for combating inflation and stabilizing the currency from its foreign
exchange assets. I think that this step would be of considerable short and long-
run benefit to China and would inspire confidence in the Chinese Government’s
handling of its difficult economic situation.

The Treasury has noted with great interest the intention of the Chinese Govern-
ment, as stated in your memorandum to the Secretary of State, to effectuate
reforms relating to financial and economic matters. We think that the carrying
out of these reforms will do more to insure confidence among the people and give
a measure of stability to the present economic and financial situation than the
gold program.

I know that you and your Government will take these friendly suggestions in
the spirit in which they are offered. As I told you, we intend to carry out
faithfully our financial agreement of 1942. However, the Chinese Government’s
response to our proposal to institute a $500 million fund and her conduct of the
gold sales program will be important considerations in our financial relations with
China.

This Government has as prime objectives the defeat of Japan and the liberation
of China. As an old friend of China, I believe that our faith and confidence in
China will be justified.

Very truly yours,

H. Morgen thau, Jr.

28 (ii)

Information Requested in Connection with the Uses of the 191$ $500
Million China Aid Credit 41

I. U. S. dollar allocations of the $500 million aid by purpose and amount.

A. Redemption of U. S. dollar securities issued in China in 1942.

1. Types of securities issued, maturity, rate of interest, exchange rate
at which sold and at which redeemed, whether or not negotiable, and
the pertinent regulations, if any, concerning their use as collateral
from 1942 to date.

2. Breakdown with respect to each type of security issued of :

a. The U.S. dollar value of sales to date.

b. The U.S. dollar face value of the securities redeemed to date.

41 Enclosure in a letter from J. Burke Knapp, Director, Office of Financial and Develop-
ment Policy, Department of State, to Dr. Shao-Hwa Tan, Minister, Chinese Embassy at
Washington, June 9, 1948. To date, the information requested has not been received.

ANNEXES 509

c. The actual amount of U.S. dollars paid out for the redemption of
securities by months and the total to date,
e [d]. The actual amount of U.S. dollars paid out in interest on the securi-
ties by months and the total to date.

f [e]. The amount of U.S. dollars the Chinese Government expects to pay
out in interest and principal in the future on outstanding
securities.

g [f]. The U.S. dollar value of purchases of securities by foreigners from
the Central Bank of China and from other banks authorized to
market the securities.

3. Breakdown with respect to each type of security of :

a. The U.S. dollar value of sales to government and semi-government
institutions by months and the total to date.

b. The actual amount of U.S. dollars paid out to government and semi-
government institutions for the redemption of securities owned by
these institutions.

B. Sales of gold purchased by the Chinese Government out of the $500 million
financial aid.

1. Breakdown of the amount of gold sold in the form of spot gold, for-
ward gold, and gold certificates by months and the total to date, with
prices at which sold.

2. The amount of gold delivered to purchasers by months and the total to
date, with details of the proceeds of the tax in gold and Chinese cur-
rency and of the impact on deliveries of gold to purchasers of the 40
percent tax on undelivered gold imposed in July 1945.

3. Breakdown of the amount of gold sold in the form of spot gold, forward
gold, and gold certificates to government and semigovernment institu-
tions and the amount delivered by months and the total to date.

4. Regulations, if any, concerning the status of gold as collateral from
1943 to date.

C. Breakdown of all other dollar expenditures by the Chinese Government out

of the $500 million financial aid by purpose, by amount and by months
and total to date.

II. Chinese currency proceeds of the sales of U. S. dollar securities, gold, and
other assets procured from the 1942 financial aid.

A. Amount of Chinese currency receipts.

1. Breakdown of amount of Chinese currency receipts by source (U.S.
securities, gold, etc.), by months and by fiscal years and the total to
date.

2. Percentage of total government revenue constituted by Chinese cur-
rency receipts of sales of U.S. securities, gold, etc. by months and
fiscal years to date.

B. Uses of Chinese currency receipts.

1. Amounts of government expenditures financed by these Chinese cur-
rency receipts by months and the total to date.

2. Percentage of total government expenditures constituted by B. 1 by
months and fiscal years to date.

C. Amounts of Chinese currency, if any, paid out for interest on and for the
redemption of U. S. dollar securities.

510

U. S. RELATIONS WITH CHINA

29(a)

President Roosevelt to Generalissimo Chiang Kcti-shek ,
February 7, 19J$ 42

It is a source of great gratification to me and to the Government and people
of the United States that the proposal which I made to the Congress that there
be authorized for the purpose of rendering financial aid to China in the sum
of $500,000,000 was passed unanimously by both the Senate and the House of
Representatives and has now become law.

The unusual speed and unanimity with which this measure was acted upon
by the Congress and the enthusiastic support which it received throughout the
United States testify to the wholehearted respect and admiration which the
Government and people of this country have for China. They testify also to our
earnest desire and determination to be concretely helpful to our partners in the
great battle for freedom. The gallant resistance of the Chinese armies against
the ruthless invaders of your country has called forth the highest praise from
the American and all other freedom loving peoples. The tenacity of the Chinese
people, both armed and unarmed, in the face of tremendous odds in carrying on
for almost five years a resolute defense against an enemy far superior in
equipment is an inspiration to the fighting men and all the peoples of the other
United Nations. The great sacrifices of the Chinese people in destroying the
fruits of their toil so that they could not be used by the predatory armies of
Japan exemplify in high degree the spirit of sacrifice which is necessary on
the part of all to gain the victory toward which we are confidently striving. It
is my hope and belief that use which will be made of the funds now authorized
by the Congress of the United States will contribute substantially toward facili-
tating the efforts of the Chinese Government and people to meet the economic
and financial burdens which have been thrust upon them by an armed invasion
and toward solution of problems of production and procurement which are
essential for the success of their armed resistance to what are now our common
enemies.

I send you my personal greetings and best wishes. I extend to you across land
and sea the hand of comradeship for the common good, the common goal, the com-
mon victory that shall be ours.

29 (b)

Joint Statement by Secretary of the Treasury Morgenthau and Dr.
T. V. Soong , Chinese Minister for Foreign Affairs , March 81, 19J$

The United States and China have today entered into an Agreement giving
effect to the Act of Congress unanimously passed by the Senate and House of
Representatives authorizing $500,000,000 of financial aid to China. The Agree-
ment, approved by the President and by Generalissimo Chiang Kai-shek, was
signed by Secretary Morgenthau on behalf of the United States and by Dr. Soong
on behalf of China.

This financial aid will contribute substantially towards facilitating the great
efforts of the Chinese people and their government to meet the financial and

42 Department of State Bulletin , Feb. 7, 1942, p. 142.

ANNEXES 511

economic burdens which have been imposed upon them by almost five years of
continuous attack by Japan.

This Agreement is a concrete manifestation of the desire and determination of
the United States, without stint, to aid China in our common battle for freedom.

The final determination of the terms upon which this $500,000,000 financial
aid is given to China, including the benefits to be rendered the United States
in return, is deferred until the progress of events after the war makes clearer the
final terms and benefits which will be in the mutual interest of the United States
and China and will promote the establishment of lasting world peace and security.

The text of the Agreement is as follows :

“Whereas, The Governments of the United States of America and of the Re-
public of China are engaged, together with other nations and peoples of like
mind, in a cooperative undertaking against common enemies, to the end of laying
the bases of a just and enduring world peace securing order under law to them-
selves and all nations, and

“Whereas, The United States and China are signatories to the Declaration of
United Nations of January 1, 1942, which declares that ‘Each government pledges
itself to employ its full resources, military or economic, against those members of
the Tripartite Pact and its adherents with which such government is at war’ ; and

“Whereas, the Congress of the United States, in unanimously passing Public
Law No. 442, approved February 7, 1942, has declared that financial and economic
aid to China will increase China’s ability to oppose the forces of aggression and
that the defense of China is of the greatest possible importance, and has author-
ized the Secretary of the Treasury of the United States, with the approval of the
President, to give financial aid to China, and

“Whereas, such financial aid will enable China to strengthen greatly its war
efforts against the common enemies by helping China to

“(1) strengthen its currency, monetary, banking and economic system:

“(2) finance and promote increased production, acquisition and distribution
of necessary goods ;

“(3) retard the rise of prices, promote stability of economic relationships, and
otherwise check inflation ;

“(4) prevent hoarding of foods and other materials;

“(5) improve means of transportation and communication;

“(6) effect further social and economic measures which promote the welfare
of the Chinese people ; and

“(7) meet military needs other than those supplied under the Lend-Lease Act
and take other appropriate measures in its war effort.

“In order to achieve these purposes, the undersigned, being duly authorized
by their respective Governments for that purpose, have agreed as follows:

Article 1.

“The Secretary of the Treasury of the United States agrees to establish forth-
with on the books of the United States Treasury a credit in the name of the
Government of the Republic of China in the amount of 500,000,000 U. S. dollars.
The Secretary of the Treasury shall make transfers from this credit, in such
amounts and at such times as the Government of the Republic of China shall
request, through the Minister of Finance, to an account or accounts in the
Federal Reserve Bank of New York in the name of the Government of the
Republic of China or any agencies designated by the Minister of Finance. Such
transfers may be requested by and such accounts at the Federal Reserve Bank of
New York may be drawn upon by the Government of the Republic of China either

512

TJ. S. RELATIONS WITH CHINA

directly or through such persons or agencies as the Minister of Finance shall
authorize.

Abticle II.

“The fiinal determination of the terms upon which this financial aid is given,
including the benefits to be rendered the United States in return, is deferred by
the two contracting parties until the progress of events after the war makes
clearer the final terms and benefits which will be in the mutual interest of the
United States and China and will promote the establishment of lasting world
peace and security. In determining the final terms and benefits full cognizance
shall be given to the desirability of maintaining a healthy and stable economic
and financial situation in China in the post-war period as well as during the
war and to the desirability of promoting mutually advantageous economic and
financial relations between the United States and China and the betterment of
world-wide economic and financial relations.

Abticle III.

“This Agreement shall take effect as from this day’s date.

“Signed and sealed at Washington, District of Columbia, in duplicate this
21st day of March, 1942.

“On behalf of the United States of America

Henby Mobgenthau, Jr.

Secretary of the Treasury

“On behalf of the Republic of China
T. V. Soong

Minister for Foreign Affair*”

30

Statement by Acting Secretary Welles, July 19, 19 1ft 43

In response to inquiries from press correspondents with regard to the British
Prime Minister’s comments upon the question of extraterritoriality in China
included in his statement of July 18, the Acting Secretary of State, Mr. Sumner
Welles, commented as follows :

“The most recent statement of this Government on this subject is contained in
a note presented on December 31, 1938, to the Japanese Government, which men-
tions inter alia the progress made toward the relinquishment of certain rights
of a special character which the United States together with other countries
has long possessed in China. In 1931 discussions of the subject between China
and each of several other countries, including the United States, were suspended
because of the occurrence of the Mukden incident and subsequent disrupting
developments in 1932 and 1935 in the relations between China and Japan. In
1937 this Government was giving renewed favorable consideration to the question
when there broke out the current Sino-Japanese hostilities, as a result of which
the usual processes of government in large areas of China were widely disrupted.

“It has been this Government’s traditional and declared policy and desire to
move rapidly by process of orderly negotiation and agreement with the Chinese
Government, whenever conditions warrant, toward the relinquishment of extra-

48 Foreign Relations of the United States , Japan 1 1931-1941, vol. I, p. 927.

ANNEXES

513

territorial rights and of all other so-called ‘special rights’ possessed by this country
as by other countries in China by virtue of international agreements. That
policy remains unchanged.”

31

Secretary Hull to the Appointed Chinese Minister for F oreign
Affairs ( Quo Tai-chi) 44

Washington, May SI, 1941.

My Dear Mr. Minister : I acknowledge the receipt of and thank you for your
letter of May 26, 1941 in regard to your visit to Washington and to our conversa-
tions during your short sojourn here.

We greatly enjoyed your visit.

It is very gratifying to receive in your letter reaffirmation of the endorsement
by the Chinese Government and people of the general and fundamental principles
which this Government is convinced constitute the only practical foundation for
an international order wherein independent nations may cooperate freely with
each other to their mutual benefit.

As you know, the program in which the Government and people of the United
States put their trust is based upon and revolves about the principle of equality
of treatment among nations. This principle comprehends equality in inter-
national relations in a juridical sense, nondiscrimination and equality of oppor-
tunity in commercial relations, and reciprocal interchange in the field of cultural
developments. Implicit in this principle is respect by each nation for the rights
of other nations, performance by each nation of established obligations, altera-
tion of agreements between nations by processes not of force but of orderly and
free negotiation, and fair dealing in international economic relations essential
to peaceful development of national life and the mutually profitable growth of
international trade. One of the purposes of this program is to effect the re-
moval of economic and other maladjustments which tend to lead to political
conflicts.

As you are also aware, the Government and people of the United States
have long had a profound interest in the welfare and progress of China. It
goes without saying that the Government of the United States, in continuation
of steps already taken toward meeting China’s aspirations for readjustment of
anomalies in its international relations, expects when conditions of peace again
prevail to move rapidly, by processes of orderly negotiation and agreement with
the Chinese Government, toward relinquishment of the last of certain rights of
a special character which this country, together with other countries, has long
possessed in China by virtue of agreements providing for extraterritorial juris-
diction and related practices.

This Government welcomes and encourages every advance made by lawful
and orderly processes by any country toward conditions of peace, security, sta-
bility, justice and general welfare. The assurances given in Your Excellency’s
letter under acknowledgment of China’s support of the principle of equality of
treatment and nondiscrimination in economic relations should have wholesome
effect both during the present period of world conflict and when hostilities shall
have ceased.

The Government of the United States is dedicated to support of the principles
in which the people of this country believe. Without reservation, we are con-

* Ibid p. 929.

514

TJ. S. RELATIONS WITH CHINA

fident that the cause to which we are committed along with China and other
countries — the cause of national security, of fair dealing among nations and of
peace with justice — will prevail.

With kindest regards [etc.]

Sincerely yours, Cordell Hull

32

Treaty Between the United States and China for the Relinquishment
of Extraterritorial Rights in China and the Regulation of Related
Matters , Signed at Washington, January 11, 1943, With Accom-
panying Exchange of Notes 46

The United States of America and the Republic of China, desirous of empha-
sizing the friendly relations which have long prevailed between their two peo-
ples and of manifesting their common desire as equal and sovereign States
that the high principles in the regulation of human affairs to which they are
committed shall be made broadly effective, have resolved to conclude a treaty
for the purpose of adjusting certain matters in the relations of the two coun-
tries, and have appointed as their Plenipotentiaries :

The President of the United States of America,

Mr. Cordell Hull, Secretary of State of the United States of America, and
The President of the National Government of the Republic of China,

Dr. Wei Tao-ming, Ambassador Extraordinary and Plenipotentiary of the
Republic of China to the United States of America ;

Who, having communicated to each other their full powers found to be in
due form, have agreed upon the following articles :

Article I

All those provisions of treaties or agreements in force between the United
States of America and the Republic of China which authorize the Government
of the United States of America or its representatives to exercise jurisdiction
over nationals of the United States of America in the territory of the Republic
of China are hereby abrogated. Nationals of the United States of America
in such territory shall be subject to the jurisdiction of the Government of the
Republic of China in accordance with the principles of international law and
practice.

Article II

The Government of the United States of America considers that the Final
Protocol concluded at Peking on September 7, 1901, between the Chinese Govern-
ment and other governments, including the Government of the United States of
America, should be terminated and agrees that the rights accorded to the Gov-
ernment of the United States of America under that Protocol and under agree-
ments supplementary thereto shall cease.

The Government of the United States of America will cooperate with the Gov-
ernment of the Republic of China for the reaching of any necessary agreements
with other governments concerned for the transfer to the Government of the
Republic of China of the administration and control of the Diplomatic Quarter
at Peiping, including the official assets and the official obligations of the Diplo-
matic Quarter, it being mutually understood that the Government of the Repub-

« 57 Stat. 767.

ANNEXES

515

lie of China in taking over administration and control of the Diplomatic Quarter
will make provision for the assumption and discharge of the official obligations
and liabilities of the Diplomatic Quarter and for the recognition and protection
of all legitimate rights therein.

The Government of the Republic of China hereby accords to the Government
of the United States of America a continued right to use for official purposes
the land which has been allocated to the Government of the United States of
America in the Diplomatic Quarter in Peiping, on parts of which are located
buildings belonging to the Government of the United States of America.

Article HI

The Government of the United States of America considers that the Interna-
tional Settlements at Shanghai and Amoy should revert to the administration
and control of the Government of the Republic of China and agrees that the
rights accorded to the Government of the United States of America in relation
to those Settlements shall cease.

The Government of the United States of America will cooperate with the
Government of the Republic of China for the reaching of any necessary agree-
ments with other governments concerned for the transfer to the Government
of the Republic of China of the administration and control of the International
Settlements at Shanghai and Amoy, including the official assets and the official
obligations of those Settlements, it being mutually understood that the Govern-
ment of the Republic of China in taking over administration and control of
those Settlements will make provision for the assumption and discharge of the
official obligations and liabilities of those Settlements and for the recognition and
protection of all legitimate rights therein.

Article IV

In order to obviate any questions as to existing rights in respect of or as to
existing titles to real property in territory of the Republic of China possessed
by nationals (including corporations or associations), or by the Government,
of the United States of America, particularly questions which might arise from
the abrogation of the provisions of treaties or agreements as stipulated in Article
I, it is agreed that such existing rights or titles shall be indefeasible and shall
not be questioned upon any ground except upon proof, established through due
process of law, of fraud or of fraudulent or other dishonest practices in the ac-
quisition of such rights or titles, it being understood that no right or title shall
be rendered invalid by virtue of any subsequent change in the official procedure
through which it was acquired. It is also agreed that these rights or titles
shall be subject to the laws and regulations of the Republic of China concerning
taxation, national defense, and the right of eminent domain, and that no such
rights or titles may be alienated to the government or nationals (including cor-
porations or associations) of any third country without the express consent of
the Government of the Republic of China.

It is also agreed that if it should be the desire of the Government of the
Republic of China to replace, by new deeds of ownership, existing leases in
perpetuity or other documentary evidence relating to real property held by na-
tionals, or by the Government, of the United States of America, the replacement
shall be made by the Chinese authorities without charges of any sort and the
new deeds of ownership shall fully protect the holders of such leases or other
documentary evidence and their legal heirs and assigns without diminution of
their prior rights and interests, including the right of alienation.

516

U. S. RELATIONS WITH CHINA

It is further agreed that nationals or the Government of the United States
of America shall not be required or asked by the Chinese authorities to make
any payments of fees in connection with land transfers for or with relation
to any period prior to the effective date of this treaty.

Article V

The Government of the United States of America having long accorded rights
to nationals of the Republic of China within the territory of the United States of
America to travel, reside and carry on trade throughout the whole extent of
that territory, the Government of the Republic of China agrees to accord simi-
lar rights to nationals of the United States of America within the territory
of the Republic of China. Each of the two Governments will endeavor to have
accorded in territory under its jurisdiction to nationals of the other country, in
regard to all legal proceedings, and to matters relating to the administration of
justice, and to the levying of taxes or requirements in connection therewith,
treatment not less favorable than that accorded to its own nationals.

Article VI

The Government of the United States of America and the Government of the
Republic of China mutually agree that the consular officers of each country, duly
provided with exequaturs, shall be permitted to reside in such ports, places and
cities as may be agreed upon. The consular officers of each country shall have the
right to interview, to communicate with, and to advise nationals of their country
within their consular districts; they shall be informed immediately whenever
nationals of their country are under detention or arrest or in prison or are await-
ing trial in their consular districts and they shall, upon notification to the appro-
priate authorities, be permitted to visit any such nationals ; and, in general, the
consular officers of each country shall be accorded the rights, privileges, and
immunities enjoyed by consular officers under modern international usage.

It is likewise agreed that the nationals of each country, in the territory of the
other country, shall have the right at all times to communicate with the consular
officers of their country. Communications to their consular officers from na-
tionals of each country who are under detention or arrest or in prison or are
awaiting trial in the territory of the other country shall be forwarded to such
consular officers by the local authorities.

Abticle VII

The Government of the United States of America and the Government of the
Republic of China mutually agree that they will enter into negotiations for the
conclusion of a comprehensive modern treaty of friendship, commerce, naviga-
tion and consular rights, upon the request of either Government or in any case
within six months after the cessation of the hostilities in the war against the
common enemies in which they are now engaged. The treaty to be thus negoti-
ated will be based upon the principles of international law and practice as re-
flected in modern international procedures and in the modern treaties which
the Government of the United States of America and the Government of the
Republic of China respectively have in recent years concluded with other gov-
ernments.

Pending the conclusion of a comprehensive treaty of the character referred to
in the preceding paragraph, if any questions affecting the rights in territory of
the Republic of China of nationals (including corporations or associations), or

ANNEXES

517

of the Government, of the United States of America should arise in future and
if these questions are not covered by the present treaty, or by the provisions of
existing treaties, conventions, or agreements between the Government of the
United States of America and the Government of the Republic of China not abro-
gated by or inconsistent with this treaty, such questions shall be discussed by
representatives of the two Governments and shall be decided in accordance with
generally accepted principles of international law and with modern international
practice.

Article VIII

The present treaty shall come into force on the day of the exchange of ratifi-
cations.

The present treaty shall be ratified, and the ratifications shall be exchanged at
Washington as soon as possible.

Signed and sealed in the English and Chinese languages, both equally authen-
tic, in duplicate, at Washington, this eleventh day of January, one thousand nine
hundred forty-three, corresponding to the eleventh day of the first month of the
thirty-second year of the Republic of China.

Cordell Hull
Wei Tao-ming

Secretaoy/ Hull to the Chinese Ambassador ( Wei Tao-ming )

Washington, January 11, 194S.

Excellency :

In connection with the treaty signed today between the Government of the
United States of America and the Government of the Republic of China in
which the Government of the United States of America relinquishes its extrater-
ritorial and related special rights in China, I have the honor to acknowledge the
receipt of your note of today’s date reading as follows :

“Excellency : Under instruction of my Government, I have the honor to state
that in connection with the treaty signed today by the Government of the Republic
of China and the Government of the United States of America, in which the Gov-
ernment of the United States of America relinquishes its extraterritorial and
related special rights in China, it is the understanding of the Government of
the Republic of China that the rights of the Government of the United States
of America and of its nationals in regard to the systems of treaty ports and of
special courts in the International Settlements at Shanghai and Amoy and in
regard to the employment of foreign pilots in the ports of the territory of China
are also relinquished. In the light of the abolition of treaty ports as such, it is
understood that all coastal ports in the territory of the Republic of China
which are normally open to American overseas merchant shipping will remain
open to such shipping after the coming into effect of the present treaty and the
accompanying exchange of notes.

It is mutually agreed that the merchant vessels of each country shall be per-
mitted freely to come to the ports, places, and waters of the other country
which are or may be open to overseas merchant shipping, and that the treatment
accorded to such vessels in such ports, places, and waters shall be no less favorable
than that accorded to national vessels and shall be as favorable as that accorded
to the vessels of any third country.

It is mutually understood that the Government of the United States of America
relinquishes the special rights which vessels of the United States of America

518

TT. S. RELATIONS WITH CHINA

have been accorded with regard to the coasting trade and inland navigation in
the waters of the Republic of China and that the Government of the Republic of
China is prepared to take over any American properties that may have been
engaged for those purposes and to pay adequate compensation therefor. Should
either country accord the rights of inland navigation or coasting trade to vessels
of any third country such rights would similarly be accorded to the vessels of the
other country. The coasting trade and inland navigation of each country are
excepted from the requirement of national treatment and are to be regulated
according to the laws of each country in relation thereto. It is agreed, however,
that vessels of either country shall enjoy within the territory of the other country
with respect to the coasting trade and inland navigation treatment as favorable
as that accorded to the vessels of any third country.

It is mutually understood that the Government of the United States of
America relinquishes the special rights which naval vessels of the United States
of America have been accorded in the waters of the Republic of China and that
the Government of the Republic of China and the Government of the United
States of America shall extend to each other the mutual courtesy of visits by
their warships in accordance with international usage and comity.

It is mutually understood that questions which are not covered by the present
treaty and exchange of notes and which may affect the sovereignty of the
Republic of China shall be discussed by representatives of the two Governments
and shall be decided in accordance with generally accepted principles of inter-
national law and with modern international practice.

With reference to Article IV of the treaty, the Government of the Republic
of China hereby declares that the restriction on the right of alienation of existing
rights or titles to real property referred to in that article will be applied by the
Chinese authorities in an equitable manner and that if and when the Chinese
Government declines to give assent to a proposed transfer the Chinese Govern-
ment will, in a spirit of justice and with a view to precluding loss on the part of
American nationals whose interests are affected, undertake, if the American
party in interest so desires, to take over the right or title in question and to pay
adequate compensation therefor.

It is mutually understood that the orders, decrees, judgments, decisions and
other acts of the United States Court for China and of the Consular Courts of
the United States of America in China shall be considered as res judicata and
shall, when necessary, be enforced by the Chinese authorities. It is further un-
derstood that any cases pending before the United States Court for China and
the Consular Courts of the United States of America in China at the time of
the coming into effect of this treaty shall, if the plaintiff or petitioner so desires,
be remitted to the appropriate courts of the Government of the Republic of China
which shall proceed as expeditiously as possible with their disposition and in so
doing shall in so far as practicable apply the laws of the United States of America.

It is understood that these agreements and understandings if confirmed by
Your Excellency’s Government shall be considered as forming an integral part
of the treaty signed today and shall be considered as effective upon the date of
the entrance into force of that treaty.

I shall be much obliged if Your Excellency will confirm the foregoing.

I avail myself of this opportunity to renew to Your Excellency the assurances
of my highest consideration.”

I have the honor to confirm that the agreements and understandings which have
been reached In connection with the treaty signed today by the Government of

ANNEXES 519

yir.vh ;

the United States of America and the Government of the Republic of China
are as set forth in the above note from Tour Excellency.

I avail myself [eta] Cordell Hull

33

Statement on Conference of President Roosevelt , Generalissimo

Chiang Kai-shek , and Prime Minister Churchill , Cairo , December

i, 1943 ™

The several military missions have agreed upon future military operations
against Japan. The Three Great Allies expressed their resolve to bring unre-
lenting pressure against their brutal enemies by sea, land, and air. This pressure
is already rising.

The Three Great Allies are fighting this war to restrain and punish the ag-
gression of Japan. They covet no gain for themselves and have no thought of
territorial expansion. It is their purpose that Japan shall be stripped of all the
islands in the Pacific which she has seized or occupied since the beginning of the
first World War in 1914, and that all the territories Japan has stolen from the
Chinese, such as Manchuria, Formosa, and the Pescadores, shall be restored to
the Republic of China. Japan will also be expelled from all other territories
which she has taken by violence and greed. The aforesaid three great powers,
mindful of the enslavement of the people of Korea, are determined that in due
course Korea shall become free and independent.

With these objects in view the three Allies, in harmony with those of the
United Nations at war with Japan, will continue to persevere in the serious and
prolonged operations necessary to procure the unconditional surrender of Japan.

49 Department of State Bulletin, Dec. 4, 1943, p. 393.

Library

College of Boca Raton
Boca Raton, FL 33431

062121

Eia3*a*C5 U53 1967b

sa

United States* Dept* of
State*

The China white paper,

History; Political Science

THE CHINA WHITE PAPER
August 1949

With a New Introduction by Lyman P . Van Slyke

This work was originally published in 1949 as United States Rela-
tions With China: With Special Reference to the Period 1944— 1949 ,
Department of State Publication 3573, Far Eastern Series 30. It
is now reissued with an extensive Index prepared for this edition.

The White Paper appeared during the final stages of Commu-
nist victory in China. Amid increasingly strident controversy over
the American role in these events, the Department of State sought
to let the record speak for itself. The work begins with a 400-
page summary of American China policy down to the summer of
1949; the remainder of the volume consists of over 600 pages of
official documents, most of which were highly classified until the
date of publication.

According to John K. Fairbank, “This volume marks the end
of an era and also tries to explain it. It represents our last real
view of the Chinese scene; everything since has been indirect.
More important, this volume distills the understanding of the
generation of trained China officers that began with the Rogers
Act of 1924. These men were true China specialists who served
in all parts of the country, and we have few like them today. In
our lifetime I doubt we shall again get this much of a grasp of the
Chinese scene.”